Republic of the Philippines

DEPARTMENT OF EDUCATION
Region I
Schools Division Office I Pangasinan
Pangasinan National High School
Lingayen, Pangasinan

FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS
AND MANAGEMENT II
Statement of Financial Position

Quarter 1 - Week 1 – Module 1

Most Essential Learning Competency: Identify the

elements of the Statement of Financial Position and
describe each of them. Prepare a Statement of
Financial Position using the report form and the
account form with proper classification of items as
current and noncurrent.
What I Need to Know
Distance Learning Delivery of Education today as a mode of learning and communicating to
students in the new normal form of education. Modules and Activity Sheets are the types of Printed Modular
Distance Learning that will be used in Fundamentals of Accountancy, Business and Management II (FABM
2) aside from Digital Modular Distance learning and Online Distance Learning.
At the end of this module, you will be able to know the elements and how the preparation of
Statement of Financial Position using report form and account form with the proper classification of the
account titles.
Specifically, this module will help you to:

✓ Identify the account titles based on the elements presented in the Statement of Financial
Position (Assets, Liabilities and Owner’s Equity).
✓ Classify the Account Titles into current, non-current, or capital
✓ Prepare a statement of Financial position using report/account form

What I Know
Directions: Presented below are the major sections of the classified statement of financial position,
followed by the list of items normally shown on the statement of financial position. Identify each
account titles into its classification in the Statement of Financial Position such as Assets, Liabilities
or Owner’s Equity.

ASSET LIABILITY OWNER’S EQUITY

__________1. Accounts payable _________18. Bond sinking Fund

__________2. Nestor, Capital _________19. Office Supplies
__________3. Buildings _________20. Trading Securities
__________4. Accounts Receivables
__________5. Note Payables
__________6. Prepaid Expenses II. Analyze and solve.
__________7. Unearned Income
__________8. Land 1. Naruto Company has the following
__________9. Cash accounts included in its December 31,2020,
_________10. Accrued Expenses trial balance: Accounts Receivable,
_________11. Wage Payable P110,000; Inventories, P290,000; Patents,
_________12. Vehicles P72,000; Prepaid Insurance, P9,500; Cash ,
_________13. Inventory P27,000; Accounts Payable, P77,000. What
_________14. Nestor, Drawing is the total amount of the Asset section of
_________15. Accrued Income the Statement of Financial Position of
_________16. Goodwill Naruto Company?
_________17. Patent
 What is It
This module in Fundamentals of Accountancy, Business and Management II (FABM 2)
leads the learners through the process of preparation of a Statement of Financial Position. It is
written specifically to meet the needs of senior high school learners in ABM strand. It introduces
learners to a complete skill and knowledge acquisition and application from accounting theories,
principles and practices. Learners can use the module as a practical guide and source to navigate
through each stage of the accounting cycle.
In module one of week one, it introduces the identification of the elements in Statement
Financial Position as well as the preparation of it to the end user with subtopics on the principles
and practices according to General Accepted Accounting Principles (GAAP).

Discussions
Business as they say, it is the “Life-blood of the economy”. It creates money that can
support individual, family, or community. The need of information about the business finances
will it helps you track income and expenditures, ensure statutory compliance, and provide
investors, management, and government with quantitative financial information which can be used
in making business decisions.

Lesson 1 Statement of Financial Position

Introduction
Financial statements are the structured representation of an entity's Entity – is an
financial position and results of its operations. It is end product of organization
accounting process. established through
The objective of the general-purpose financial statement is to
laws or accounting
provide information about the financial position, performance and cash
principles that
flows of an entity that is useful for making economic decisions. Financial
statements also show the result of management’ stewardship of the resources separates it from its
entrusted to it. Accounting information is most commonly communicated to owners, other
users through the financial statements. To meet this objective, financial organizations, and
statement provides information about an enterprise’s: individuals and other
organizations.
1. How much resources are controlled by an entity and how these resources
were generated? - (financial position).
• Assets
• Liabilities
• Equity or Capital
2. How well the entity performed during certain period? - (results of operation).
a. Income and expenses, including gains and losses
3. How well manage is the cash transaction of the business during the period? – (cash flows)
Complete set of Financial Statements
A complete set of financial statements comprises:
 Type of FS Description
- Also called Balance Sheet or Statement of Condition
1. Statement of Financial Postion

- Prov ides information on the entity's assets, liabilities

and equity
2. Statement of Comprehensiv e Income - Also called Statement of Profit or Loss or Statement of
Performance
- Prov ides information on income and expenses
3. Statement of Changes in Equity - Prov ides information on the mov ements in the
components of equity during the period
- Prov ides information on how cash and cash equiv alents
4. Statement of Cash Flows
were generated and used during the period
- Prov ides narrativ e disclosures and other information
5. Notes required by the standards but were not presented in
the other FS
6. In some cases, an additional
- This is discussed in higher accounting subjects
statement of financial position

Note: The succeeding section focuses on the preparation, strength and limitations of Statement of
Financial Position and describe how the companies report their assets, liabilities and
Equity/Capital

STATEMENT OF FINANCIAL POSITION

NATURE

The Statement of Financial Position often called the balance sheet, is a financial statement that
reports the assets, liabilities, and equity of a company on a given date. In other words, it lists the
resources, obligations, and ownership details of a company on a specific day.

USEFULNESS

This Financial report is useful in assessing present and future cash flows, liquidity and long-term
solvency of an entity.
Liquidity refers to the period of time before an asset is converted to cash or until a liability is paid.
Example of transaction regarding liquidity is when the company received money from the
costumer for rendering services to them or when the company paid to the supplier their obligation.
Long-term solvency refers to the riskiness of a company with regard o the amount of liabilities in
its capital structure. Generally, the risk to an investor/creditor increases as the percentage of
liabilities relative to equity increases. Solvency also provides information about the financial
flexibility, that is the ability of a company to meet its long-term debts and other financial
obligations. For instance, the higher the percentage of liabilities to its equity (Liability > Capital),
the more difficult will be to borrow additional funds either in investment opportunity or to meet
obligations.
LIMITATIONS
The Statement of Financial Position does not fully portray the market value of the entity as a going
concern nor its liquidation value. Many assets are measure at their historical cost. However, with
the adoption of Philippine Financial Reporting Standard (PFRS), the measurement of assets at fair
value became the process of presenting most of its assets.

ELEMENTS OF STATEMENT OF FINANCIAL POSITION

The elements of the Statement of Financial Position are:
✓ ASSETS - This is a resource owned by the enterprise as a result of past events and from
which future economic benefits are expected to flow to the enterprise.
✓ LIABILITIES - This are present obligations of an enterprise arising from past transactions
or events, the settlement of which is expected to result in an outflow from the enterprise or
resources embodying economic resources.
✓ EQUITY/CAPITAL - This represent the residual interest in the assets of the entity after
deducting all its liabilities (ASSETS minus LIABILITIES equals Equity/Capital)

Preparation of the Statement of Financial Position

The heading for the Statement of Financial Position must include the name of the business,
name of the statement and the date which is as at the end of the period being reported.
Example:
Pangasinan NHS Company Name of Business

Name of the report Statement of Financial Position

As of December 31, 2020 Date being reported

Format
The elements may be presented using either:
a) Account form
This presentation reflects the basic accounting equation where assets are listed on
the left-hand side of the statement while liabilities and equity/capital are listed on
the right-hand side

Account form reflects the basic accounting equation:

ASSETS = LIABILITIES + EQUITY/CAPITAL
Example:

Pangasinan NHS Company

Statement of Financial Position
As of December 31, 2020

b) Report form
This presentation lists the accounts in a downward sequence. Thus, assets are listed
at the top while the liabilities and equity/Capital are shown below the assets section

Example:

Pangasinan NHS Company

Statement of Financial Position
As of December 31, 2020
Accounting Elements

Asset Section
Assets are classified into two groups
✓ Current Assets
✓ Non-current Assets

CURRENT ASSETS
An asset shall be classified as a current asset when: ✓ Realized means
a. It expects to realize the assets, or intends to sell or converted to cash or
consume it, in its normal operating cycle. claim for cash
b. It holds the asset primarily for the purpose of trading. ✓ Normal operating cycle
c. It expects to realize the asset with in twelve (12) is the time between the
months after the reporting period; or acquisition of the asset
through their
d. The asset is cash and cash equivalent (PAS 7) unless
realization in cash
the asset is restricted from being exchanged or used to
✓ Cash and cash
settle a liability for at least twelve (12) months after the equivalent must be
reporting period unrestricted
✓ PAS – Philippine
Some examples of Current Asset Accounting Standard

1. Cash and cash equivalent

Cash normally consist of coins and currencies on hand, money orders and some checks
from customers and deposit in banks. According to PAS 1, cash shall classify an asset
as current asset when the asset is unrestricted in use unless it is restricted from being
exchange.
Unrestricted in use – this means that the cash must be readily available in the
payment of current obligations.

Cash Equivalents (PAS 7) – is a short term and highly liquid investment that are
readily converted into cash and so near their maturity that they present insignificant
risk of changes in value.
Highly liquid – investment that are acquired three months before maturity can
qualify as cash equivalents

2. Receivables (PAS 39)

Represent amounts collectible from customers, clients and person for goods, services
or money given. It must be “non-derivative financial assets with fixed or determinable
payments that are not quoted in active market”

Characteristic of Receivables
✓ fixed or determinable payments
✓ May or may not have a fixed maturity or term
✓ Not quoted in active market
 Types of Receivables

a. Trade receivable – refers to claims arising from sale of merchandise or service in

ordinary course of business operation. Usual types are accounts receivable and notes
receivable.
✓ Accounts Receivable – are open accounts or those not supported by promissory
notes.
Allowance for doubtful accounts – contra-asset account that reduces
accounts receivable
✓ Notes receivable – are those supported by formal promises to pay in the form
of notes

b. Non-trade Receivable – claims arising from sources other than the sale of merchandise
or services in the ordinary course of business operation.
- Accrued interest receivable
- Advances to Officer and Employees
- Dividends Receivable

3. Inventory (PAS 2)

Assets that are held for sale in ordinary course of business. It is the process of
production for such sale or in the form of material or supplies to be consumed in the
production process or in rendering of services.

4. Prepaid Expenses

Are expenses paid and recorded as an asset before they are used or consumed.
Common:
1. Prepaid Rent
2. Prepaid Insurance
3. Prepaid Advertising
Note: Sub-classification is Supplies.

5. Short-term Investment/ Marketable Securities

Temporary Investment – Short term investments of funds which are available for
current operations and intended to be held for not more than 1 year.

NON-CURRENT ASSETS

All other asset that are cannot be classified as current are Non-current Assets.

Some examples of Non-current Assets

1. Fixed Assets

Known as PPE or Property, Plant and Equipment. These are tangible assets which
are held by an enterprise for used in production and services and expected to be used
for more than one accounting period.
 The tangible assets with an estimated useful life beyond one year, used in the
conduct of business, and are not intended for sale in the course of business. (PAS
40)
Accumulated Depreciation – contra-asset account representing usage of
asset or expired cost of the asset up to the present. This is a deduction from
the appropriate fixed asset account except for the Land.

2. Intangible Assets

Identifiable non-monetary assets without physical substance held for use in the
production or supply of goods and services, for rental to others or administrative
purposes. (PAS 38)
Long-lived assets without physical substance whose value lies in the rights,
privileges, and competitive advantages that give to the owner.

3. Long-term Investments

Assets that a company intends to hold for more than a year. This is an account on the
asset side of a company's balance sheet that represents the company's investments,
including stocks, bonds, real estate, and cash.

4. Other Non-current Assets

✓ Advances to Officers and Employees not collectible within 1 year

✓ Restricted cash Accounts such as Cash in closed Banks
✓ Long-term installment receivable
✓ Non-productive property – IDLE ASSETS
✓ Damaged inventory not yet declared as loss by the enterprise

Liabilities Section
Liabilities are also classified into two groups
✓ Current Liabilities
✓ Non-current Liabilities

CURRENT LIABILITIES

A liability shall be classified as a current liability when:

a. It is expected to be settled in its normal operating cycle.
b. It is held primarily for the purpose of trading
c. The liability is due to be settled with twelve (12) months after the reporting
period
d. It does not have an unconditional right to defer settlement of the liability for at
least twelve (12) months after the reporting period.

Examples of Current Liabilities

1. Trade accounts (Accounts Payable) and Notes Payable
 These are obligation arising from the firm’s on-going operations including acquisition
of merchandise, materials, supplies and services used in the production and sale of
goods and services.

2. Accrued Expenses payable

These are expenses incurred as of the financial reporting date for which cash has not
been paid. Examples are accrued wages, accrued interest and accrued taxes.

3. Currently Maturing portion of Long-term debt

Portion of long-term debts (bonds, notes) which become payable within the upcoming
year are reported among the current liabilities

4. Unearned Revenues/ Advances from customers

These are advances collection from costumers relating to the future delivery of goods
and services. Examples of revenue collected in advance include gift certificates, college
tuition, rent paid in advance and magazine subscription

NON-CURRENT LIABILITIES

All other liabilities that do not meet the criteria for current liabilities are classified as non-
current liabilities.

Some examples of Non-current Liabilities

1. Long-term Payable

This represents a long-term debt whose maturity extend beyond one year and is
evidenced by formal document in exchange for a loan or non-cash asset that purchased
on credit. Example of long-term payables are bonds payable or notes payable

2. Installment notes payable

This represents an indebtedness that is repaid through installment over a period

exceeding one (1) year. The portion of the principle scheduled to be paid in the next
twelve (12) months or within one (1) year is classified as current liabilities.

Equity/Capital Section
This represent the residual interest of the entity. Capital section differs according to
structure of a business in which are:
✓ Sole proprietorship – Owner’s Equity
✓ Partnership – Partner’s Equity
✓ Corporation – Shareholder’s Equity
Sample of Sole proprietorship’s Statement of Financial Position

Sample of Partnership’s Statement of Financial Position

Sample of Corporation’s Statement of Financial Position

Pangasinan NHS Company

Statement of Financial Position
As of December 31, 2020
 What’s More

A: Title of the Activity: Classifying the Accounts into Current and Non-current
Accounts
Most Essential Learning Competency: Identify the elements of the Statement of
Financial Position and describe each of
them.

K to 12 BEC CG: ABM_FABM12-Ia-b-1

Directions: Presented below are the major sections of the classified

statement of financial position, followed by the list of items
normally shown on the statement of financial
position.

I. Presented below are the Account titles of ABM company’s statement of Financial Position.

A. Current Asset C. Current Liabilities E. Share Capital

B. Non-current Asset D. Non-current Liabilities F. Retained Earnings

Indicate by CAPITAL letter where each of the following items should be classified.

____1. Preference Share ____9. Cash surrender value of life

____2. Goodwill insurance
____3. Wage Payable ____10. Ordinary shares
____4. Accounts Payable ____11. Net income
____5. Buildings ____12. Dividend paid
____6. Land ____13. Taxes payable
____7. Long-term Payables ____14. Bonds payable
____8. Accounts Receivables ____15. Unearned Income

II. Analyze and solve.

1. MG Company’s adjusted trial balance contained the following liabilities accounts at December
31, 2020: Bonds Payable (due in 3 years), P100,000; Accounts Payable, P72,000; Notes Payable
(due 90 days), P12,500; Accrued salaries, P4,000; Taxes Payable, P7,000. What is the total current
liabilities section that should be presented in the statement of financial position?

2. Dragon Nest Corporation’s adjusted trial balance contained the following accounts at December
31, 2020, Dividends Paid, P120,000; Ordinary Share Capital, P700,000; Bonds sinking Fund,
P100,000; Additional Paid-In capital, P200,000; Goodwill, P55,000; Retained Earnings,
P150,000. What is the total equity section to be presented in the statement of financial position?
3. Naruto Company has the following accounts included in its December 31, 2020, trial balance:
Accounts Receivable, P110,000; Inventories, P290,000; Patents, P72,000; Prepaid Insurance,
P9,500; Cash, P27,000; Accounts Payable, P77,000. What is the total current asset section to be
presented in the Statement of Financial Position of Naruto Company?

B: Title of the Activity: Classifying the Elements in the Statement of Financial

Position
Most Essential Learning Competency: Prepare a Statement of Financial Position
using the report form and the account form
with proper classification of items as current
and noncurrent

K to 12 BEC CG: ABM_FABM12-Ia-b-4

Direction: From the adjusted trial balance of XYZ Sole Company, prepare a
Statement of Financial Position using report form, properly
classify all the accounts as to the following items:

(a) Total Current Assets (e) Total Non-current Liabilities

(b) Total Non-current Assets (f) Owner’s Equity
(c) Total Assets (g) Total Liabilities and Owner’s Equity
(d) Total Current Liabilities
XYZ Sole Company
Adjusted Trial Balance
December 31, 2020
Debit Credit
Cash P33,700
Trading Securities 15,000
Notes Receivable 22,000
Interest on notes receivable 2,100
Accounts Receivable 79,500
Allowance for Bad Debts P4,600
Inventory 59,300
Prepaid Expenses 8,200
Accounts Payable 57,600
Notes Payable 11,000
Accrued interest on notes 950
Land 282,600
Buildings 192,000
Accumulated Depreciation – Building 21,000
Equipment 53,000
Accumulated Depreciation – Equipment 5,900
Loan Payable, due next year 80,000
Mortgage Payable 72,000
Accrued interest on mortgage 4,350
Sole, Capital 500,000
Sole, Drawing 10,000
Total 757,400 757,400
 XYZ Sole Company
Statement of Financial Position
December 31, 2020

Note: You may use additional sheets if necessary

What I Have Learned

This module discussed the theories, applied concept and practices of Statement of Financial
Position. It also includes application of such concepts, principles and practices through a problem-
solving analysis to help students understand the application of such fundamental theories.
The major concept of this is the preparation of Statement of Financial Position according
to the standard presented by General Accepted Accounting Principles (GAAP). In which
conclusive data are organized and classified into section of Assets, Liabilities and Capital with
their sub-classification of account titles. The primary objective of financial statement is to:
1. Provide information to investors

Investors will want to know how cash is being reinvested in the business, and how efficiently
capital is being used. Financial reporting helps investors decide whether your business is a
good place for their cash.

2. Track cash flow

Where is your business’ money coming from? Where is it going? Is the business making a
profit or a loss? These answers are important to know – they show how well your business is
performing, and whether it can cover its debts and continue to grow.

3. Analyze assets, liabilities and owner's equity

By monitoring these, and any changes to them, you can work out what to expect in the future,
and what you can change now to prepare. This also shows the availability of resources for
future growth.
 What I Can Do
Title of the Activity: Create my own Statement of Asset, Liabilities and Capital
Most Essential Learning Competency: Prepare a Statement of Financial Position
using the report form and the account form
with proper classification of items as current
and noncurrent

Direction: Create your own Statement of Financial Position based on your ideal business/
lifestyle status.

(Name of the Business)

Statement of Financial Position
December 31, (year today)

ASSETS Amount
Current Assets

Total current assets

Non-current Assets

Total non-current assets

Total Assets

Liabilities
Current Liabilities

Non-current Liabilities

Name, Capital
Note: You may use additional sheets for this activity
Required:
Prepare a Statement of Financial Position using the principles of General Accepted Principles
(GAAP) which includes the at least five (5) Account Titles in each Accounting Elements of
Asset and Liabilities.

Rubrics

1. The students should able to create the statement of assets, liabilities and net worth following
criteria of:

A. Content (50%) – The learners should able to identify the asset and liabilities part of the
item with current values.
B. Presentation (35%) – The learners should present their output in a good form with clarity
and cleanliness.
C. Accuracy (15%) – The learners should be able to present their output with exact value and
computation.

REFERENCES

A. Books
Ma. Elenita B. Cabrera and Gilbert Anthony B. Cabrera . 2017. Fundamentals of
Accountancy, Business and Management 2 Volume 2 .CM Recto Avenue Manila
Philippines: GIC Enterprises and Co., INC
Maria Veronica Joy M. Binuya. 2016. Fundamentals of Accountancy, Business and
Management Book 2. Manila, Philippines: JFS Publishing Services

B. Government Publications

Josefina L. Beticon,et.al. 2016. Fundamentals of Accountancy, Business and Management

2. 1253 Gregorio Araneta Avenue, Quezon City, Philippines: Vidal Group, Inc.

C. Online and Other Sources

None