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Lesson 3 Week 3 FABM 2

This document contains lesson notes on liabilities, current liabilities, non-current liabilities, and owner's equity from an accounting fundamentals course. It defines liabilities and how they are classified based on maturity. It provides examples of current liabilities like accounts payable, notes payable, loans payable, and accrued liabilities. It also gives examples of non-current liabilities like mortgage payable and bonds payable. The document includes an example statement of financial position with liabilities and owner's equity sections. It also covers the statement of changes in owner's equity and how it shows changes in capital from additional investments, withdrawals, and net income/loss.

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Mikel Nelson Ampo
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49 views

Lesson 3 Week 3 FABM 2

This document contains lesson notes on liabilities, current liabilities, non-current liabilities, and owner's equity from an accounting fundamentals course. It defines liabilities and how they are classified based on maturity. It provides examples of current liabilities like accounts payable, notes payable, loans payable, and accrued liabilities. It also gives examples of non-current liabilities like mortgage payable and bonds payable. The document includes an example statement of financial position with liabilities and owner's equity sections. It also covers the statement of changes in owner's equity and how it shows changes in capital from additional investments, withdrawals, and net income/loss.

Uploaded by

Mikel Nelson Ampo
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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LESSON 3

GRADE 12
FUNDAMENTAL OF ACCOUNTANCY, BUSINESS
AND MANAGEMENT 2

MCA Montessori School, Inc. “LESSON 3 ”


LIABILITIES AND OWNER’S
EQUITY

MCA Montessori School, Inc. “WEEK 3 ”


LIABILITIES
Liabilities are either current liabilities or non-current
liabilities. Liabilities are classified and presented based on
their maturity. Obligations presently due for payment are
listed first.
REVIEW OF CLASSIFICATION OF LIABILITIES
A.CURRENT LIABILITIES
Improvements to International Accounting Standard 1
(December 2003) classify a liability as a current liability when it is:
a. Expected to be settled in the entry’s normal operating cycle;
b. Held primarily for the purpose of being traded; and
c. Due to be settled within twelve months after the balance sheet
date; or the entity does not have an unconditional right to defer
settlement of the liability for atleast twelve months after the
balance sheet date.
Classification of Current Liabilities
1. Trade and Other Payables include payables from any of the
following accounts:

• Account payables included debts arising from purchase of an


asset or acquisition of services on account.

• Notes payable includes debts arising from purchase of an asset


or acquisition of services on account evidenced by a promissory
note.
Classification of Current Liabilities
• Loan Payable is a liability to pay the bank or other financing
institution arising from funds borrowed by the business from
these institutions payable within twelve months or shorter.

Note: If loan is payable beyond twelve months, then it is classified


as under non-current liabilities.
Classification of Current Liabilities
• Utilities Payable is an obligation to pay utility companies for
services received from them. Examples of this are telephone
services to PLDT, electricity to Meralco, and water services to
Maynilad.

• Unearned Revenues represent obligations of the business


arising from advance payments received before goods or
services are provided to the customer. This will be settled when
certain goods or services are delivered or rendered.
Classification of Current Liabilities
2. Accrued Liabilities include amounts owed to others for
expenses already incurred but not yet paid. Examples of these are
salaries payable, utilities payable, taxes payable, and interest
payable.
Classification of Non-Current Liabilities
Non-Current Liabilities are long term liabilities or obligations which are
payable for a period longer than one year . Examples of Non-current
Liabilities are as follows:

Mortgage Payable is a long-term debt of the business with security or


collateral in the form of real properties . In case the business fails to pay
the obligation , the creditor can foreclose or cause the mortgaged asset to
be sold and the proceeds of the sale to be used to settle the obligation.

Bonds Payable is a certificate of indebtedness under the seal of a


corporation , specifying the terms of repayment and the rate of interest
to be charged.
The owner’s equity is added below the liabilities. Presented below is the
liabilities section and owner’s equity section of the statement of financial
position and its supporting notes.

Liabilities &Owner’s Equity Note

Current Liabilities
Trade and Other Payables 9 P 430,000
Non-Current Liabilities
Mortgage Payable P 300,000
Loan Payable 100,000
Total Non-Current Liabilities 400,000
Total Liabilities P 830,000
Owner’s Equity
Ren, Capital 680,000
Total Liabilities and Capital P 1,510,000
Note 9- Trade and Other Payables

Accounts Payable

Notes Payable 250,000


Accrued Expenses. 120,000
6,0000
Total P 430,000
DRILL 1
Presented below are the assets of RodNeddlie Trading. Prepared the assets
section of the balance sheet for year ended December 31, 2016 together with
the supporting notes.
• Cash on Hand Ᵽ200,000
• Accounts Receivable 100,000
• Allowance for Bad Debts 5,000
• Notes Receivables 40,000
• Interest Receivable 12,000
• Advances to Employees 20,000
• Accrued Income 10,000
• Supplies 1,000
• Prepaid Rent 7,000
• Land 400,000
• Building 700,000
• Accumulated Depreciation-Building 50,000
• Equipment 100,000
• Accumulated Depreciation-Equipment 30,000
QUIZ
Answer “Drill 2” on page 34
THE STATEMENT OF CHANGES
IN OWNER’S EQUITY

MCA Montessori School, Inc. “WEEK 3 ”


THE STATEMENT OF CHANGES IN OWNER’S EQUITY

The Statement of Changes in Owner’s Equity or Statement of


Owner’s Equity shows the changes in the Capital or Owner’s Equity as a
result of additional investment or withdrawals by the owner, plus or minus
the net income or net loss for the year.

Capital is an account bearing the name of the owner representing the original and
additional investment of the owner of the business increased by the amount of net
income earned during the year. It is decreased by the cash or other assets withdrawn
by the owner as well as the net loss incurred during the year.
THE STATEMENT OF CHANGES IN OWNER’S EQUITY

Drawing represents the withdrawals made by the owner of the


business either in cash or other assets.

Income summary is a temporary account used at the end of the


accounting period to close income and expense accounts. The
balance of this account shows the net income or net loss for the
period before it is closed to the capital account.
Below is the statement of owner’s equity of Ren Ren Merchandising.

Ren Ren Merchandising


Statement of Changes in Owner’s Equity
For Year Ended December 31, 2016

Ren, Capital, Beginning P 280,000


Add: Additional Investment P 22, 200
Net Income 407,800 430,000
Total P 710,000
Less: Drawing 30,000
Ren, Capital, End P 680,000

*The ending capital of P680,000 is the owner’s equity in the statement of


financial position.
DRILL 3
The beginning capital of RodNeddie Trading is P728,000.
During the year the owner made an additional investment of
P20,000 and withdrew P35,000 for personal use. Net income
during the year amounted to 45,000. Prepare the statement of
changes in owner’s equity for year ended December 31, 2017.
WEEK 3
GRADE 12
FUNDAMENTAL OF ACCOUNTANCY, BUSINESS
AND MANAGEMENT 2

MCA Montessori School, Inc. “WEEK 3 ”

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