Module 1:

Statement
of Financia
Position
Fundamentals of Accountancy, Business, and
Management 2
 Objecti
1
Define the
ves: 2
Explain the
3
Identify and
4
Classify the
Statement of objective of SFP explain the elements of SFP
Financial Position elements of SFP into current and
non-current items
Objecti
ves: 5
Prepare the SFP of
a single
6
Prepare SFP using the
report form and the
proprietorship account form with proper
classification of items as
current and non- current
Financial Statement
• Financial Statement are a structured
representation of the financial position and
financial performance of an entity. The
objective of financial statements is to
provide information about the financial
position, financial performance and cash
flows of an entity that is useful wide range in
making economic decisions.

Fundamentals of Accountancy, Business, and

Management 2
Financial Statement
• Financial Statement also show the result of the management’s
stewardship of the resources entrusted to it. To meet the objective ,
financial statements provide information about entity’s
a. Assets
b. Liabilities
c. Equity
d. Income and expense, including gains and losses;
e. Contribution by and distributions by their capacity as owners; and
f. Cash flows
The information , along with the other information in the notes , assists
users of financial statements in predicting the entity’s future cash flows and
in particular , their timing and certainty.

Fundamentals of Accountancy, Business, and

Management 2
• A complete set of financial statements comprises:
a. a statement of financial position as at the end of the period
b. a statement of comprehensive income for the period
c. a statement of changes of equity for the period;
d. a statement of cash flows for then period;
e. notes, comprising a summary of significant accounting policies and
other explanatory information ; and
f. a statement of financial position as at the beginning of the earliest
comparative period when an entity applies am accounting policy
retrospectively or make a retrospective restatement of items in its
financial statements, or when it reclassifies items in its financial
statements.

Fundamentals of Accountancy, Business, and

Management 2
Definition
STATEMENT OF FINANCIAL POSITION
• is a statement that gives financial condition
of a business of a given date
• Another name for the balance sheet
• Composed of 3 elements - assets, liabilities,
and capital

Assets- is a resources controlled by the entity

as a result of past events and from which future
economic benefits are expected to flow to the
entity.
Definition
STATEMENT OF FINANCIAL POSITION
• is a statement that gives financial condition
of a business of a given date
• Another name for the balance sheet
• Composed of 3 elements - assets, liabilities,
and capital

Liability- are the present obligation of the entity arising

from past events , settlement of which is expected to
result in an outflow from the entity of resources
embodying economic benefits.
Definition
STATEMENT OF FINANCIAL POSITION
• is a statement that gives financial condition
of a business of a given date
• Another name for the balance sheet
• Composed of 3 elements - assets, liabilities,
and capital

Equity- is the residual interest in the assets of the entity

after deducting all its liabilities.
 Defin
STATEMENT OF

ition
FINANCIAL POSITION
• Reports the resources
available for the
company to use,
obligation that the
company is required to
settle, and the equity
that belongs to the
owners of the company
• The purpose of the SFP
is to present TRUE
INFORMATION ABOUT
THE COMPANY’S
 The

Balanc

e Sheet

and
 The

Statem

ent of

Financi
Advantage
s of SFP
• It provides information about the financial
position of the company
• It helps in ratio analysis
• The statement of a current period can be
compared with the last year’s statement to
track the company’s performance
• Investors get information about the
company’s financial health, and based on
this statement, they can make their
investment decisions
• It also helps determine the comany’s
liquidity by providing data about the current
Objective of a
General Purpose
Statement of
• LIQUIDITY
= can be measured from quick assets and current
Financial Position
assets in relation to current liabilities

• SOLVENC
= pertains to a proportion of total long-term debts
Y
to total assets

• FINANCIAL STRUCTURE
= refers to the mix of debt and equity that a company
uses to finance its operation. The financial managers of
the business have the responsibility of deciding the best
mixture of debt and equity for optimizing the financial
 Assets
• Cash, tools, equipment, building, and
land
• are controlled by the enterprise
• result from past events
• give future economic benefits
• can be used by themselves alone to yield
incom SPECIFIC
• Cash and Cash ASSETS • Prepaid Expenses
Equivalents • Property, plant, and equipment
• Notes Receivables • Intangible asset (copyright, patent,
• Accounts Receivables etc)
• Inventories
 Liabilities
• Settlement of a PAYMENTS MAY BE
liability will decrease DONE THROUGH:
the assets of an • Cash
entity • Distribution of other
• Incurred to realize a asset
• Rendering of services
transfer of economic
• Substitution with
benefits
• Notes Payable another liability
• Accounts Payable • Conversion of the
• Accrued Liabilities liabilityinto ownership
• Unearned Revenues interest of the lender in
• Mortgage Payable
•
the borrowers entity
Others
 Capital
• Invested in the form of funds, merchandised, equipment, and other
properties.
• Owner’s primary purpose is to maximize the use of capital by gaining
profits
• Profit increases capital while loss decrease capital.
Single Proprietorship Capital
Account
Partnership Capital Account for each
partner

Corporations Ordinary Share Capital, preference share

capital
 Presentation of
Statement of
Financial Position
Classified (current/non-current distinction)
• A classified balance sheet shows information on current and noncurrent
assets and liabilities; or

Unclassifies (based on liquidity)

• an unclassified balance sheet does not show distinction between current and
noncurrent assets and liabilities.
 Presentation of
Statement of
Financial
TRADE AND NONTRADE

Position
RECEIVABLES
• Trade receivables are receivables arising from the sale
of goods or services in the ordinary course of business.
All other receivables are nontrade.

a. Trade receivables are presented as current assets if they

are collectible within the normal operating cycle, even if
the normal operating cycle is longer than 12 months
b. Nontrade receivables are presented as current assets
only if they are collectible within 12 months from the end of
reporting period.
 Presentation
of Statement
of Financial
LINE ITEMS
• Accounts are presented in the financial

Position
statements using “line items.” A line item is a
caption used to describe a group of accounts with
similar nature. Examples of line items in the
balance sheet
ASSET
a. Cash and cash equivalents
⮚ Cash – includes cash on hand and cash in bank.
⮚ Cash equivalents – are some short term debt
securities that are acquired 3 months prior the
maturity date
 Presentation
of Statement
of Financial ASSET
b. Trade and other receivables

Position
⮚ Account Receivable
⮚ (Less) Allowance for Bad debts
⮚ Notes Receivable - only the current portion is
included, noncurrent portion is presented separately.
⮚ Advance to Suppliers – is an account used to
record advance payment made to suppliers for
purchase of inventories that have not yet been
delivered by the supplier.

c. Inventory – consist of goods held for sale in the

ordinary course of business.
 Presentation
of Statement
of Financial
d. Prepaid Assets
ASSET

Position
⮚ Prepaid Supplies
⮚ Prepaid Rent
⮚ Prepaid Insurance

e. Property Plant and Equipment

⮚ Land
⮚ Building
⮚ (Less) Accumulated Depreciation – Building
⮚ Equipment
⮚ (Less) Accumulated Depreciation – Equipment
 Presentation
of Statement
of Financial LIABILITIES
a. Trade and Other Payables

Position
⮚ Account Payable
⮚ Notes Payable
⮚ Short-Term Borrowings
⮚ Current Portion of Long-Term Borrowings
⮚ Non-Current Portion of Long-Term Borrowing
⮚ Income Tax Payable
Classification of
SFP Elements
into Current and
Current Asset Noncurrent Asset
Noncurrent
• Not restricted in use, readily
convertible to cash, or to be
• Those asset that do not
qualify as current asset.
sold or consumed within
normal operaring cycle of a Ex: land, building, equipment,
business, or one year furniture and fixtures, leasehold
rights
Ex: cash, trading account securities,
receivables, merchandise inventory,
prepaid expense
Classification of
SFP Elements
into Current and
CURRENT LIABILITIES
• Debts or obligations normally expected to be

Noncurrent
settled within one year
• Ex: Accounts payable, loans payable, utilities
payable, interest payable, notes payable

NON-CURRENT LIABILITIES
• Long-term debts which will be settled for more than
one year
• Ex: Notes Payable (due more than a year),
mortgage payable, bond payable
Normal
Operating
Cycle of
Mechandising
Business
 Preparation of the
SFP of a Single
Proprietorship
The SFP reports the total assets, total liabilities, and total owner’s
equity of the business. It follows the accounting equation:

A=L+OE

that is, total assets should be equal with the total liabilities and
owner’s equity.
 Preparation of the
SFP of a Single
Proprietorship
1.SFP must have heading - name of the business, title of report, date covered
2.Its left margin is subdivided into 2: extreme margin for major subheading
(e.g. current asset: plant, property, and equipmment) and inner margin for
specific account titles
3.A double rule is placed under “total assets” and “total liabilities and owners
equity”
4.Asset must be equal to liabilities plus owner’s equity
 Preparation of the
SFP of a Single
Proprietorship
There are two acceptable formats of
Account Form SFP:
Follows the general ledger T-Account format.
Assets on the left and Liabilities and Equity on
the right
There are two
acceptable
formats of SFP:

Preparation
of the SFP in
Report Form
 Determine if the following are
current assets, current liabilities,
noncurrent assets or noncurrent
liabilities
 References
Fundamentals of Accountancy, Business and Management 2 Week1-2. (2018). SlideShare;
Slideshare. https://www.slideshare.net/slideshow/fundamentals-of-accountancy-business-and-
management-2-week12/106017178#17
FABM2- Module 1.pptx. (2022). SlideShare; Slideshare.
https://www.slideshare.net/slideshow/fabm2-module-1pptx/253013625

Millan and Ferrer, Fundamentals of Accountancy, Business & Management 2 (2019), Philippines:
Bandolin Enterprise