IDENTIFY THE ELEMENTS OF THE

SFP AND DESCRIBE EACH OF

THEM

ABM_FABM12-IA-B-1
PRESENTING EXAMPLES/INSTANCES OF THE NEW LESSON

Picture Analysis
DIRECTIONS:

Classify the pictures whether it is asset, liability,

and owner’s equity.
ASSETS
OWNER’S EQUITY
ASSETS
OWNER’S EQUITY
ASSETS
OWNER’S EQUITY
ASSETS
LIABILITIES
• How did you find the activity?
• How did you come up with your answers?
DISCUSSING NEW CONCEPTS AND PRACTICING
NEW SKILLS #1

• Based on the activity, what are the three elements of SFP? What
account titles belong to Assets? Liabilities? Capital?
THREE ELEMENTS OF SFP

Assets Liabilities Owner’s Equity

ASSETS

These are economic resources owned by the business expected for

future gain. They are property and rights of value owned by the
business.
LIABILITIES

• These include debts, obligations to pay, and claims f the creditors on the assets
of the business.
OWNER’S EQUITY OR CAPITAL

• This includes the interest of the owners on the business; claims of the owners
on the assets of the business; and the investment of the owner plus or minus the
results of operations. Owner’s equity or capital comes from two main sources
—investment of owners and earnings of the business.
FINDING PRACTICAL APPLICATIONS OF CONCEPTS
AND SKILLS IN DAILY LIVING

• What are you transactions every day that involves money?

STATEMENT OF FINANCIAL POSITION

• – Also known as the balance sheet. This

statement includes the amounts of the company’s
total assets, liabilities, and owner’s equity which
in totality provides the condition of the company
on a specific date
• PERMANENT ACCOUNTS – As the name suggests, these
accounts are permanent in a sense that their balances remain intact
from one accounting period to another. (Haddock, Price, & Farina,
2012) Examples of permanent account include Cash, Accounts
Receivable, Accounts Payable, Loans Payable and Capital among
others. Basically, assets, liabilities and equity accounts are
permanent accounts. They are called permanent accounts because
the accounts are retained permanently in the SFP until their
balances become zero. This is in contrast with temporary accounts
which are found in the Statement of Comprehensive Income (SCI).
Temporary accounts unlike permanent accounts will have zero
balances at the end of the accounting period
• CONTRA ASSETS – Contra assets are those accounts that are presented
under the assets portion of the SFP but are reductions to the company’s
assets. These include Allowance for Doubtful Accounts and Accumulated
Depreciation. Allowance for Doubtful Accounts is a contra asset to
Accounts Receivable. This represents the estimated amount that the
company may not be able to collectdelinquent customers. Accumulated
Depreciation is a contra asset to the company’s Property, Plant and
Equipment. This account represents the total amount of depreciation
booked against the fixed assets of the company.
• from delinquent customers. Accumulated Depreciation is a contra asset
to the company’s Property, Plant and Equipment. This account represents
the total amount of depreciation booked against the fixed assets of the
company.
DIFFERENTIATE THE REPORT FORM
AND ACCOUNT FORM
• Report Form – A form of the SFP that shows asset accounts first and then
liabilities and owner’s equity accounts after. (Haddock, Price, & Farina,
2012)The balance sheet shown earlier is in report form.
• Account Form – A form of the SFP that shows assets on the left side and
liabilities and owner’s equity on the right side just like the debit and credit
balances of an account. (Haddock, Price, & Farina, 2012)
• a. Emphasize that the two are only formats and will yield the same amount of
total assets, liabilities and equity
• b. Emphasize that assets should always be equal to liabilities and equity
• Current Assets – Assets that can be realized
(collected, sold, used up) one year after year-end
date. Examples include Cash, Accounts Receivable,
Merchandise Inventory, Prepaid Expense, etc.
• Current Liabilities – Liabilities that fall due (paid,
recognized as revenue) within one year after yearend
date. Examples include Notes Payable, Accounts
Payable, Accrued Expenses (example: Utilities
Payable), Unearned Income, etc.
• Noncurrent Assets – Assets that cannot be realized (collected,
sold, used up) one year after yearend date. Examples include
Property, Plant and Equipment (equipment, furniture,
building, land), Long Term investments,Intangible Assets etc.
• Noncurrent Liabilities – Liabilities that do not fall due (paid,
recognized as revenue) within one year after year-end date.
Examples include Loans Payable, Mortgage Payable, etc
• Noncurrent assets and noncurrent liabilities are also called
long term assets and long term liabilities.
• Difference of the Statement of Financial Position of a
Service Company and of a Merchandising Company The
main difference of the Statements of the two types of
business lies on the inventory account.
• A service company has supplies inventory classified under
the current assets of the company. While a merchandising
company also has supplies inventory classified under the
current assets of the company, the business has another
inventory account under its current assets which is the
Merchandise Inventory, Ending.