Learning Activity Sheet

Grade Grade 12 Quarter 1

Level/ ABM2 Fundamentals of Accountancy,
Subject Business and Management 2

Topic ELEMENTS OF STATEMENT OF FINANCIAL Week 1

POSITION

MELC identify the elements of the SFP and describe Competency 1

each of them ABM_FABM12-Ia-1

Specific A. Define Statement of Financial Position and Duration

Objectives each of the account titles found in the
elements of the Statement of Financial
Position.

B. Classify the account titles according to the

three main elements of found in the Score
Statement of Financial Position (Asset,
Liability, and Capital)

I. Let’s Know

This learning activity covers preliminaries on Statement of Financial Position.

Through this, you will be able to define and classify the elements found in this type of
financial statement.

Statement of Financial Position is also known as the Balance Sheet which the
summary of company's resources, obligations, and details of ownership (Statement of
Financial Position, 2020).

It is a report based on the accounting equation: Assets= Liabilities + Owners’

Equity. The sum of assets should be balanced to the sum of the liabilities and equity
(Salazar, 2017).

Assets = Liabilities + Owner’s Equity

P1,000 = P 400 + P 600
Fig. 1 Accounting Equation

Assets are resources with future benefits which are within the company's
control. Cash, receivables, inventory, prepaid expenses, property, plant, and
equipment and the like are examples of assets (D. R. Salazar 2017).
 Cash is money owned by the company. It can be Cash on-hand or Cash in
Bank. Cash on-hand is kept in the premises of the business, while cash in bank refers
to money in the bank kept for deposit or account checks. Cash refers only to funds that
are readily available to be spent on the activities of the company. This is used to buy
goods, pay vendors, taxes, wages for workers and others. It is also used in liability
settlement. It comes from owners' contribution, from borrowing proceeds, from the sale
of assets or from customers' collections. Cash on-hand covers notes, coins, and bank
checks kept at company premises (D. R. Salazar 2017). Checks can be listed as a
part of the cash because they are accepted as payments and deposits.

Cash equivalents are not immediately available for use since it will become
cash within the next 90 days. Time deposits with term maturities of ninety days or less
are examples of cash equivalents. Components of cash and cash equivalents (cash
on-hand, cash in bank, cash equivalents) are required to be disclosed in the
accompanying notes to financial statements (D. R. Salazar 2017)

Receivables. It refers to the company’s right to collect or claim payment.

Normally the term for accounts receivable is 30 days from the date of delivery. Some
sellers would give 60, 90, and 180 days.

Notes receivable. A kind of receivable that is evidenced by promissory notes.

It is a legal document that says the borrower promises to pay, on scheduled payment
dates, a specific sum called the principal and interest based on principal and stated
interest rate (D. R. Salazar 2017).

Inventory. It is cost of merchandise intended to be sold in the normal course

of business. Items that are to be used on day-by-day activities of the company are
supplies and not inventory (Bragg 2020).

Prepaid Expenses. It refers to advance payment of future expenses.

Expenses are only recorded when purchased goods and services are used (Averkamp
2020).

Example:
A business owner who rents paid in advance in the month of January the
February, March and April rent. The advance payment for rent will be considered as
Prepaid Rent Expense since February, March and April have not yet used or incurred.

Property, Plant and Equipment are long-term assets that are used in the
operations of the company. Long-term assets (or non-current asset) will be used in the
business for more than one year. Examples are land, building warehouse,
automobiles, delivery vehicle, computer equipment and manufacturing equipment.
Only those assets owned and controlled by the company will be reported as PPE (D.
R. Salazar 2017).

Intangible assets are similar long-term assets to PPE. For more than a year,
those assets will be used in the business. The distribution of the cost of intangible
assets is called amortization to the year it was used (D. R. Salazar 2017). It is
computed similar to depreciation such that the cost of the asset is amortized evenly
over its useful life. The main difference between the two asset is that intangible assets
have no tangible properties. Patent, brand name and trademark are examples of
intangible assets.

Liabilities are obligations that the company is required to pay. Creditors are
the entities whom the company is indebted.

Payables. It refers to obligation to pay. It may be accounts payable and notes

payable. Accounts payable refers to obligation to the suppliers of inventories. Notes
Payable refers to an obligation evidenced by a promissory note. A promissory note
expresses the borrower’s promise to pay. The promissory note’s issuer will report this
as Notes Payable in his accounting (D. R. Salazar 2017).

Accrued Expenses. It refers to the unpaid expenses of the company as of the

cut-off date of the Statement of Financial Position. There are many kinds of accrued
expenses such as Salaries Payable, Utilities Payable, Rent Payable, and Interest
Payable (Financial Accounting Accrued Expense 2020).

Unearned Income. Customer deposits or down payments are customer

payments received before the delivery of goods or services, it will not count as sales
until deliveries are made. Rather, the payments are initially recorded as Unearned
income- a liability payable in goods or services. Unearned income is a liability,
however, the settlement of unearned income is not through direct cash payments to
the customer, instead, it is settled by the delivery of goods or rendering of services
(CFI 2020).

Long-term liabilities refer to obligations with due dates falling more than one
year from the date of the Financial Position Statement. Bank loan is a typical example
of Long-term Liability. A promissory note is written on it. Interest payments are
periodic, and the principal's repayment is based on contract agreement (Salazar,
2017).

Equity is the net assets of the business. It is composed of the owner’s

investments and the accumulated net income of the company, net of any distributions
to the owner. It reflects the portion of the asset that belongs to the owners of the
business. For the Sole proprietorship, the Statement of Financial Position will reflect
only one equity account- Owner’s Capital. The net income earned or net loss by the
company is also closed to the capital account (D. R. Salazar 2017).
 Let’s Perform & Practice (Activity)

Instruction: Classify the accounts in the Statement of Financial Position whether is it

Asset, Liability or Capital.

Time Allotment: 5 mins.

1 Cash on-hand 6 Cash in Bank
2 Owner, Capital 7 Long-term Payable
3 Intangible Assets 8 Unearned Income
4 Cash Equivalents 9 Accrued Expenses
5 Notes Payable 10 Notes Payable

II. Let’s Connect / Let’s Analyze

Kylie is a Senior High TVL graduate of 2019, she wants to put up her own small
online business. She invested P1,000 cash as her start-up capital of her food
business. She does not pay for advertisement since she posts her products online
using her social media. Prior to taking orders online, she bought hand mixer and
some baking supplies. In the first week she already experienced high volume of
orders, and she is delighted with it. Due to high volume of orders and limited capital,
she decided to ask help from her parents so, she borrowed money amounting to P
3,000 and promised to pay within 1 month.

In one occasion, one of her customers ordered a cake from her and paid in
advance to be delivered the following month, she accepted the money worth P
5,000 as advance payment. The advance payment from customers is immediately
deposited to her bank account. Kristine one of her close friend received her order
and promised to pay her in 2 weeks.

Questions:
1. Name the account titles that are categorized as asset in the Statement of
Financial Position?

2. What are the account titles that are categorized as liability in the
Statement of Financial Position?
3. How much is the capital of Kylie?
III. Let’s Answer

Multiple Choices. Write the letter of the correct answer in a separate sheet of
paper.

1 It refers to a report that reflects the summary of company’s resources, obligation

and details of ownership.
A Statement of Cash Flow C Statement of Financial Position
B Statement of Financial Operation D Statement of Owner’s Equity

2 Which of the following is an example of asset?

A Accounts Payable C Unearned Income
B Accounts Receivable D Accrued Expense

3 Which of the following refers to the cost of unsold merchandise?

A Accounts Receivable C Inventory
B Capital D Supplies

4 What account title to be used when the transaction is an advance payment of

future expense?
A Accrued Expense C Prepaid Expense
B Accounts Receivable D Unearned Income

5 Which of the following refers to long-term assets that are used in the operations
of the company?
A Accounts Receivable C Inventory
B Cash D Property, Plant and Equipment

IV. Let’s Explore / Let’s Create

Assignment:

Instructions: Give examples of Assets and Liabilities identified in your household.

Write the answers in the box provided.

Assets
=
Liabilities
+
Owner’s Equity
References
Averkamp, Harold. 2020. What are prepaid expenses? July 2.
https://www.accountingcoach.com/blog/what-are-prepaid-expenses.

Bragg, Steven. 2020. Inventory. July 2.

https://www.accountingtools.com/articles/2017/5/13/inventory.

CFI. 2020. Unearned Revenue. July 3.

https://corporatefinanceinstitute.com/resources/knowledge/accounting/unearned-
revenue/.

2020. Financial Accounting Accrued Expense. July 3. https://accounting-simplified.com/accrued-

expense.html.

Salazar, Dani Rose. 2017. Fundamentals of Accountancy, Busines and Management 2. Quezon City:
Rex Book Store Inc.

2020. Statement of Financial Position. June 15. https://accounting-

simplified.com/financial/statements/statement-of-financial-position.html.

Prepared by:

QUENNIE D. GUMALAWE
 ANSWER KEY

Competency 1: Identify the elements of the SFP and describe each of them
ABM_FABM12-Ia-1

Let’s Perform & Practice (Activity)

1 Cash on Hand Asset 6 Cash in Bank Asset
2 Owner, Capital Capital 7 Long-term Payable Liability
3 Intangible Assets Asset 8 Unearned Income Liability
4 Cash Equivalents Asset 9 Accrued Expenses Liability
5 Notes Payable Liability 10 Notes Payable Liability

Let’s Connect / Let’s Analyze

Questions:
4. Name the account titles that are categorized as asset in the Statement of
Financial Position?
Possible Answers:
Cash on Hand & Cash in Bank , Hand Mixer , Supplies
Accounts Receivable

5. What are the account titles that are categorized as liability in the
Statement of Financial Position?
Possible Answers: Accounts Payable , Unearned Income

6. How much is the capital of Kylie?

Answer: 1,000

Let’s Answer:
1. C 2. B 3. C 4. C 5. D

Let’s Explore
Give examples of Assets and Liabilities identified in your household. Write the
answers in the box provided.