Statement of Financial Position

Module 2
Objectives:
Understand the purpose of the SFP
Enumerate the basic elements of the SFP
Describe the nature of the accounts reported on the SFP
Prepare SFP using report and account format
Prepare a classified SFP
Determine the normal balances of the SFP accounts
LIABILITIES
These are OBLIGATIONS that the company is required to pay.

1. Payable
2. Accrued Expenses
3. Unearned Income
4. Long-term Liabilities
LIABILITIES
1. PAYABLES - are obligations to make payments to creditors.

2 kinds of Payables:

1. ACCOUNTS PAYABLE - normally refers to obligation to the suppliers of

inventories. Most suppliers give discount for early payment. Credit terms
2/10, n/30 (reads: two ten net thirty) means payment of full amount is due on
30 days but a 2% discount may be given if paid within ten days.
2. NOTES PAYABLE - refers to an obligation evidenced by a promissory note.NP
is a document that expresses the borrower’s promise to pay.
LIABILITIES
2. ACCRUED EXPENSES - refers to unpaid expenses of the company as of the cut-
off date of the Statement Financial Position.

Example:

1. Salaries Payable
2. Utilities Payable
3. Rent Payable
4. Interest Payable
LIABILITIES
3. UNEARNED INCOME - are customer payments before the delivery of goods or
services. A liability payable in goods or services.

Example:

Can a tailor record revenue based on the amount of downpayment received from
the customer?

NO. He can only record revenue when what he sew are delivered to and accepted
by the customer.

Settlement of this is NOT thru payment of cash rather the delivery of goods or
services.
LIABILITIES
4. LONG-TERM LIABILITIES - refer to OBLIGATIONS with due dates that fall more
than one year from the date of Statement of Financial Position.

Example:

1. Bank Loan. Documented by a promissory note and the company pays interest
periodically.
2. Mortgage Loan. A debt instrument, secured by the collateral of specified real
estate property, that the borrower is obliged to pay back with a predetermined
set of payments.
EQUITY
1. EQUITY - is the net assets of the business.

● It reflect the portion of the asset that belongs to the owners of the business.
PRESENTATION OF THE SFP
Two acceptable format of the Statement of Financial Position (SFP):

1. REPORT FORM - this is a simple list. All assets are listed first, followed by
liabilities and finally the equity account.
2. ACCOUNT FORM - mimics the general ledger T-account. Assets are reported
on the left and list of liabilities and equity on the right.

CLASSIFICATION OF ASSETS and LIABILITIES IN STATEMENT OF FINANCIAL

POSITION:

3. Current
4. Non-current
PRESENTATION OF THE SFP
PRESENTATION OF THE SFP
NORMAL BALANCES OF ACCOUNTS