Financial Structure of a Business

Based on the Framework of Accounting, the financial position or structure of a business entity is based on three
elements – assets, liabilities, and owner’s equity while its financial performance is based on two elements called
revenues and expenses.

Accounting Equation

Assets = Liabilities + Owner’s Equity

Illustration:

July 1 May Gomez opened a tour and travel service by contributing cash of P50,000 and a car worth P750,000.
3 Gomez borrowed P100,000 cash from a bank for use in her business.
7 Bought tables and chairs from Blims and paid cash, P45,000.
15 Various equipments were purchased on account from National Winners for P55,000.
18 Gomez made cash withdrawal of P5,000 for personal use.
20 The account due to National Winners was paid in cash.

A Summary of the transactions in a table is shown below:

DATE Assets Liabilities Owner’s Equity

July Cash Cars Equipment Furniture Loans Accounts Gomez, Capital
Payable Payable
1 50,000 750,000 800,000
3 100,000 100,000
7 (45,000) 45,000
15 55,000 55,000
18 (5,000) (5,000)
20 (55,000) (55,000)

Total 45,000 750,000 55,000 45,000 100,000 0 795,000

Statement of Financial Position

The Statement of Financial Position is a list of assets, liabilities and owner’s equity of a business. This statement informs
the users of the wealth and obligations accumulated by the business. It was formerly called Balance Sheet.

Happy Tour and Travel

Statement of Financial Position
July 20, 2014

Assets
Cash P 45,000
Cars 750,000
Equipment 55,000
Furniture 45,000
Total Assets P 895,000

Liabilities and Owner’s Equity

Loans Payable P 100,000
Gomez, Capital 795,000
Total Liabilities and Owner’s Equity P 895,000
Exercise 1

Summarize the following transactions on the table provided below.

2 Susan Alegre started Copyclear and Bindery Center by contributing cash of P20,000 and equipment of
P48,000.
5 Bought furniture and fixtures worth P6,000, on account.
7 Bought a photocopier machine for P20,000. Terms: 50% down, balance on account.
10 An emergency prompted Ms. Alegre to withdraw P1,500 for personal use.
15 Bought supplies costing P3,000 and paid cash.
20 The account of August 5 is due. Ms. Alegre paid this from her personal cash.
30 The account of August 7 is due. Issued a promissory note for this.

DATE Assets Liabilities Owner’s Equity

August Cash Supplies Furniture Equipment Accounts Notes Alegre, Capital
and Fixtures Payable Payable
2 20,000 48,000 68,000
5 6,000 6,000
7 (10,000) 20,000 10,000
10 (1,500) (1,500)
15 (3,000) 3,000
20 (6,000) 6,000
30 (10,000) 10,000

TOTAL 5,500 3,000 6,000 68,000 0 10,000 72,500

Exercise 2

Indicate which accounting elements of the business are affected by placing in the respective columns increase, decrease
and no effect.

Transactions Assets Liabilities Owner’s Equity

Increase No Effect Increase
Investment of Assets by the owner
Decrease No Effect Decrease
Withdrawal of assets by the owner
Increase No Effect No Effect
Purchase of assets in cash Decrease
Increase Increase No Effect
Purchase of assets on account
Decrease Decrease No Effect
Settlement of liabilities in cash
No Effect Increase No Effect
Settlement of accounts with a note Decrease
No Effect Decrease Increase
Settlement of liabilities from owner’s personal cash
Exercise 3
Using the accounting equation, compute for the missing financial statement amounts.

ASSETS LIABILITIES OWNER’S EQUITY

1 800,000 300,000 500,000
2 600,000 200,000 400,000
3 900,000 360,000 540,000
4 500,000 ¾ (375,000) 125,000 (500,000 x ¼)
5 450,000 135,000 70% (315,000)

Exercise 4

Sept. 1 Yhacky Avuda started an internet shop called “Yakavud Computer” by investing P350,000.
5 Purchased a computer on account from Mitungmu Merchandising worth P30,000.
10 Two months rent deposit was paid in cash, P10,000.
15 Paid P8,000 for furniture.
20 Purchase Supplies for cash, P1,500.
21 Paid half of the accounts due to Mitungmu.
23 Yhacky withdrew P2,000 for personal use.
25 The shop was ready for the installation of computer units. Yhacky purchased 12 units of computer from Tagpi
PC for P250,000. He paid 40% in cash and issued a note for the balance payable in 10 monthly instalments
starting next month.

 Analyze (construct a table) the transactions using the following accounts: Cash, Supplies, Rent Deposits,
Furniture and Fixtures, Equipments, Leasehold Improvements, Notes Payable and Avuda, Capital.
Date Cash Supplies Rent Furniture Equipment Accounts Notes Avuda,
Deposits and Payable Payable Capital
Fixtures
1 350,000 350,000
5 30,000 30,000
10 (10,000) 10,000
15 (8,000) 8,000
20 (1,500) 1,500
21 (15,000) (15,000)
23 (2,000) (2,000)
25 (100,000) 250,000 150,000

213,500 1,500 10,000 8,000 280,000 15,000 150,000 348,000

Exercise 5

Cely Kalaw started a new business in advertising called the Straight and True Advertising. On October 5 she transferred
half of her P300,000 savings to the account of the business. The following are the transactions which you are required to
summarize in a table. Include money columns for Cash, Art Supplies, Office Supplies, Equipment, Furniture and Fixtures,
Accounts Payable, Notes Payable and Kalaw, Capital.

9 Knowing that she would need supplies such as illustration boards, art papers, and coloring materials, she
went to Divisoria and bought this for P15,000 in cash.
16 Purchased a photo equipment with a cost of P45,000 from Camera Work. She paid one-third and promise
to pay the balance at the end of the month.
20 A friend, Lisa, bought a fax machine a year ago for P10,000. She sold this to Cely who promised to pay her
P6,000 after thirty day.
22 Purchased paper for the fax machine and paid cash, P1,500.
25 Purchased furniture and fixtures on credit, P8,000.
28 Paid one-half of the account owing to Camera Work and issued a note promising to pay the balance within
30 days.

Additional Requirement: Statement of Financial Position

Exercise 6
The following transactions were entered into by Dr. Jo Valdez for the month of November:

4 Jo Valdez opened “Jo’s Health Spa” by investing P1,500,000 cash and half a lot inherited by Jo and her
sister Ann worth P500,000. Cash was deposited in the name of the health spa.
8 Clinic bought for cash P900,000 worth of equipment and P15,000 worth of supplies.
10 Bought furniture and fixtures from a friend at a cost of P150,000 promising to pay after seven days. Only
P80,000 of these were placed in the clinic. The remaining P70,000 furniture and fixtures were placed in her
condominium unit.
12 Applied for a P2,500,000 business loan from a bank by mortgaging her inherited lot. The money will be
used to construct the clinic.
14 Withdrew supplies worth P2,000 for personal use.
15 The loan was approved and the money were deposited on the account of the health spa.
17 Paid one-half on the amount due on the furniture and fixture placed in the clinic
30 A two-storey clinic was constructed on the inherited lot by a friend who gave her a discount of P100,000.
She paid P2,400,000 only for the construction.

 Analyze (construct a table) the transactions using the following accounts: Cash, Supplies, Land, Building,
Furniture and Fixtures, Equipments, Accounts Payable, Loans Payable and Valdez, Capital.
 Prepare a Statement of Financial Position.