UNIVERSITY OF SAINT LOUIS

Tuguegarao City

SCHOOL OF ACCOUNTANCY, BUSINESS and HOSPITALITY

First Semester
A.Y. 2021-2022

ONLINE LEARNING MODULE

ACCT 1013 – Conceptual Framework and Accounting Standards

Week 11 and 12: Statement of Financial Position(SFP)

Topics: a) Components of Assets, Liabilities and Equity

b) Working Capital
c) Two Methods of Presentation of the SFP

Learning Outcomes: At the end of this module, you are expected to:
1. Identify the components of Current and Noncurrent Assets;
2. Identify the components of Current and Noncurrent Liabilities
3. Understand and master the computation of working capital
4. Identify the components of Owner’s Equity
5. Prepare a properly classified balance sheet

Hi guys, here’s wishing you all a wonderful, productive and healthy week ahead!
As promised I am sharing the prayer to St. Michael the Archangel. Pray it daily, as I have said, there is no
substitute for a prayer coming directly from your heart. Here it goes:

Prayer to St Michael (pray it daily)

St. Michael, the archangel, defend us in the day of battle; be our safeguard against the wickedness and snares
of the devil.
May God rebuke him we, humbly pray, and do thou O prince of the heavenly host, by the power of God, cast
into hell, Satan, and all the other evil spirits, who prowl through the world seeking the ruin of souls, AMEN.
Do you believe in Angels?

Trivia: Saint Michael the Archangel isn't a saint, but rather he is an angel, and the leader of all angels and of
the army of God. This is what the title "Archangel" means, that he is above all the others in rank.

Lesson Proper

ACCT 1013 – Conceptual Framework and Accounting Standards | 1

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The components of the Statement of Financial Position

Classification of Assets
as Current or Non-current:
depends on the operating
cycle of the business

Operating Cycle – is the

time between the
acquisition of assets for
processing and their
realization in cash or cash
equivalents.

When operating cycle is not clearly identifiable, the duration is presumed to be for a period of twelve months.

Here is a sample operating cycle of a

merchandising business.

The period of time from the purchase and

sale of inventory until its collection and
conversion to Cash constitutes one
operating cycle which is normally a
period of 12 months or one year.

Current Assets

PAS 1 par 66 provides that an entity shall classify an asset as current under the following conditions:
1. The asset is cash or cash equivalent unless the asset is restricted to settle a liability for more than twelve
(12) months after the reporting period;
2. The entity holds the asset primarily for the purpose of trading
3. The entity expects to realize the asset within twelve months after the reporting period
4. The entity expects to realize the asset or intends to sell or consume it within the entity’s normal operating
cycle.

The most common examples of

Current Assets, presented in the
order of Liquidity or nearness to
Cash

ACCT 1013 – Conceptual Framework and Accounting Standards | 2

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Noncurrent Assets

PAS 1 par 66 simply states that “an entity shall classify all assets not classified as current as noncurrent”
Accordingly, noncurrent assets include the following:

➢ Property, plant and equipment

➢ Long-term investments
➢ Intangible assets
➢ Deferred tax assets
➢ Other noncurrent assets

‘will be discussed in higher

accounting subjects

Other non-current assets may include other long-term assets not included in investments, fixed or intangible
assets categories. Other non-current assets may be portions of prepaid expenses that will start expiring in more
than a year after the balance sheet date and the cash surrender value of life insurance on officers.

LIABILITY is a present obligation of an entity to transfer an economic resource as a result of past event.

A liability can be classified as current or noncurrent.

ACCT 1013 – Conceptual Framework and Accounting Standards | 3

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Current Liabilities

PAS 1 par 54 provides for the classification of a liability as current: Line items in Current Liabilities:
1. Trade and Other Payables
1. The entity expects to settle the liability within the entity’s normal operating 2. Current Provisions
cycle. 3. Short-term borrowings
2. The entity holds the liability primarily for the purpose of trading. 4. Current portion of Long-
3. the liability is due to be settled within 12 months. term debt
4. The entity does not have an unconditional right to defer settlement of the 5. Current Tax liability
liability for at least twelve months (12) after the reporting period.

Noncurrent Liabilities – PAS 1 par 69 provides that all liabilities not classified as current are noncurrent.

➢ Noncurrent portion of a long-term debt;

➢ Finance lease liability
➢ Deferred tax liability
➢ Long-term obligations to company officers
➢ Long-term deferred revenue

Owner’s Equity
Stated in another way, Equity is also referred to as Net
Assets.

In formula form, equity is:

Assets – Liabilties = Equity

The terms used in the preparation of owner’s equity depends on the form of business. The forms of business
organizations are:
Sample Format of owner’s Equity – Sole Proprietorship

Sample format of Shareholders’ Equity -

ACCT 1013 – Conceptual Framework and Accounting Standards | 4

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Sample format of Owners’ Equity – Partnership Corporation

Forms of the Statement of Financial

Position or Balance Sheet:
1. Report form – the three major
sections, Assets, Liabilities and
Equity are presented in a downward
sequence.
2. Account form – the assets are
shown on the left side, while liabilities
and equity are on the right side of the
SFP

Last topic under SFP is Working Capital

SFP
What is a good working capital?

Generally, a working capital ratio of less

than one is taken as indicative of potential
future liquidity problems, while a ratio of
1.5 to two is interpreted as indicating a
company on solid financial ground in terms
of liquidity. An increasingly higher ratio
above two is not necessarily considered to be better.

The formula to compute working

capital is

ACCT 1013 – Conceptual Framework and Accounting Standards | 5

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For better appreciation, a sample Balance Sheet is presented below:

End of Lesson 8

ACCT 1013 – Conceptual Framework and Accounting Standards | 6

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References:

1. Cabrera, E, et al. (2018). Conceptual Framework and Accounting Standards. Manila: GIC
Enterprises
2. Valix, C, et al. (2019). Conceptual framework and accounting standards. Manila: GIC Enterprises &
Co., Inc.
3. Ballada, W. (2019). Basic Financial Accounting and Reporting. Manila: DomDane Publishers.
4. Cabrera, E.(2017) Fundamentals of Accounting Volume I, GIC Enterprises & Co., Inc., Manila
5. Financial Reporting Standard Council (2017). Philippine Financial Reporting Standards. PICPA
6. Valencia, E. and Roxas, G. (2017), Basic Accounting. Baguio City: Valencia Educational Supply
7. Valix, C. and Peralta, J. (2018). Financial Accounting Volume I. GIC Enterprises & Co., Inc., Manila
8. Empleo, P. and Robles, N. (2019). The Philippine Financial Reporting Reporting (Conceptual
Framework and Accounting Standards). Mandaluyong City: Millennium Books, Inc.

Electronic Resource:
1. Introduction to accounting, https://courses.lumenlearning.com/sac-finaccounting/chapter/chapter-1/
2. Accounting Basic https://www.accountingcoach.com/accounting-basics/explanation
3. Basic Accounting. https://www.bizfilings.com/toolkit/research-topics/finance/basic-accounting/the-
accounting-system-and-accounting-basics
4. Basic accounting and bookkeeping lessons, http://www.moneyinstructor.com/accounting.asp
5. Financial Accounting. https://www.accountingcoach.com/financial-accounting/explanation
6. Accounting Tutorials for Beginners. https://www.guru99.com/accounting.html
7. International Financial Reporting Standards. www.ifrs.org
8. International Accounting Standards. www.iasplus.com/en/standards/ias

ACCT 1013 – Conceptual Framework and Accounting Standards | 7

This document is a property of University of Saint Louis Tuguegarao. It must not be reproduced
nor transmitted in any form, in whole or in part, without expressed written permission.