11 SENIOR HIGH SCHOOL

FABM 2
Quarter 3 - Module 1
The Statement of Financial Position
(Elements, Forms and its
Classifications)
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FABM2
Quarter 3 – Module 1
The Statement of Financial
Position (Elements, Forms and
its Classifications)
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PRETEST: Multiple choice.

Direction: Read each item carefully and use your notebook to write your answers. Select the
letter of the best answer.
1. A statement of financial position can be best described as a:
a. Listing of money received and paid during the past year.
b. Summary of what happened last year
c. Summary of all assets, expenses, liabilities and revenues
d. Summary of the position of an organization.
2. An asset is an
a. Expense that will recur in more than one year
b. Obligations to transfer benefits as a result of the past transactions.
c. Interest of the owners in the business
d. Any financial resources that is used by the business in its operation trade offs
3. The statement of Financial Position is:
a. A – C = L
b. L + C = A
c. A – L = C
d. All of the above
4. MN Mitz have assets of Php130,000.00, liabilities of Php 90,000: as such the owners’
equity will be:
a. Php 40,000.00
b. Php 50,000.00
c. Php 60,000.00
d. Php 70,000.00
5. What is a financial statement that shows the financial position of an enterprise at a
particular point in time?
a. Statement of Financial Position
b. Income Statement
c. Statement of changes in Equity
d. Cash Flow Statement
6. A Statement of Financial Position
a. Shows the changes of the owners interest
b. Reports the assets and claims of an enterprise at a specified moment in time
c. Presents revenues and expenses of an enterprise
d. Reports the inflow and outflow of cash in an enterprise
7. Which of the following transactions would increase cash as well as non-current liabilities?
a. Long term bank loan
b. Purchasing equipment on credit
c. Payment to suppliers
d. Payment from customers

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7. Which of the following accounts is a current asset?
a. Bonds Payable
b. Property, Plant and Equipment
c. Trade and other payables
d. Trade and other receivables
8. Which of the following accounts is a non-current asset?
a. Accounts Payable
b. Capital
c. Cash
d. Trademarks
9. Which of the following accounts is a current liability?
a. Trade receivables
b. Retained Earnings
c. Trade Payables
d. Machineries
11. Purchased supplies on account, P900. Indicate the effect on the accounting equation.
a. Increase in asset, decrease in another asset.
b. Increase in asset, increase in liability.
c. Decrease in asset, decrease in liability
d. Decrease in asset, decrease in owner’s equity
12. Is the list of finished goods or goods used in production held by a company.
a. Inventory
b. Receivable
c. Notes Payable
d. Owner’s equity.
13. Provide services rather than products to customers.
a. Manufacturing Business
b. Merchandising Business
c. Service Business
D. None of the above
14. Also known as the “language of business”.
a. Finance
b. Organization
c. Management
d. Accounting
15. Mar-mar’s Eatery has assets of P800,000.00 and Owner’s Equity of P450,000.00. Using
the accounting equation, determine the Liabilities:
a. P800,000
b. P300,000
c. P450,000
d. P350,000

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 ’s In

We already have learned that the end product /output of accounting is useful financial
information. This useful financial information is the “story” that accounting tells to the
interested users.
Financial information is contained and communicated through the financial statements.
Financial Statements tells about what has and is happening in the business.
Financial statements are organized depictions of the events that happened in a business.
A complete set of financial statements are composed of the following:
1. Statement of Financial Position(Balance Sheet)
2. Statement of Comprehensive Income(Income Statement)
3. Statement of changes in Equity
4. Statement of cash Flow
5. Notes, comprising a summary of significant accounting policies and other
explanatory information.

’s New

Let us now focus on the first financial statement which is the Statement of Financial
Position or the Balance Sheet.
STATEMENT OF FINANCIAL POSITION – Also known as the balance sheet. This
statement includes the amounts of the company’s total assets, liabilities, and owner’s equity
which in totality provides the condition of the company on a specific date. (Haddock, Price, &
Farina, 2012)
The items reported on the balance sheet correspond to the accounts outlined on your
chart of accounts. A statement of financial position/balance sheet is made up of the following
elements:
• Assets
o Current Asset
o Non current Assets
• Liability
o Current Liabilities
o Non current Liabilities
• Owner’s Equity
o Income
o Expenses

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 is It

Assets

The assets section of the statement of financial position /balance sheet breaks down
what your business owns of value that can be converted into cash. Your statement of financial
position /balance sheet will list your assets in order of liquidity; that is, it reports assets in order
of how easily they can be converted to cash. There are two main categories of assets included
on your balance sheet:

Current Assets: Current assets can easily be converted to cash within a year or less. Current
assets are further broken down on the balance sheet into these accounts:

Cash and cash equivalents: These are your most liquid assets, including currency, checks and
money stored in your business’s checking and savings accounts.

Marketable securities: Investments that you can sell within a year.

Accounts receivable: Money that your clients owe you for your services that will be paid in
the short term.

Inventory: For businesses that sell goods, inventory includes finished products and raw
materials.

Prepaid expenses: Things of value that you’ve already paid for, like your office rent or your
business insurance.

Long-Term Assets: Long-term assets won’t be converted to cash within a year. They can be
further broken down into:

Fixed assets: Includes property, buildings, machinery and equipment like computers.

Long-term securities: Investments that can’t be sold within one year

Intangible assets: Assets that aren’t physical objects, such as copyrights, franchise agreements
and patents.

Current Assets are arranged based on which asset can be realized first (liquidity). Current assets
and current liabilities are also called short term assets and shot term liabilities.

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Liabilities

The next section of a balance sheet lists a company’s liabilities. Your liabilities are the
money that you owe to others, including your recurring expenses, loan repayments and other
forms of debt. Liabilities are further broken down into current and long-term liabilities.

Current liabilities. Liabilities that fall due (paid, recognized as revenue) within one
year after year-end date, include rent, utilities, taxes, current payments toward long-
term debts, interest payments and payroll.

Long-term liabilities. Liabilities that do not fall due (paid, recognized as revenue)
within one year after year-end date. include long-term loans, deferred income taxes and
pension fund liabilities.

Noncurrent assets and noncurrent liabilities are also called long term assets and long
term liabilities.

Shareholders Equity

Shareholders equity refers to the amount of money generated by a business, the amount
of money put into the business by its owners (or shareholders) and any donated capital.
Shareholders equity is your net assets. On your balance sheet it’s calculated using this formula:

Stakeholders Equity = Total Assets – Total Liabilities

PERMANENT ACCOUNTS– As the name suggests, these accounts are permanent in a sense
that their balances remain intact from one accounting period to another. (Haddock, Price, &
Farina, 2012).

Examples of permanent account include Cash, Accounts Receivable, Accounts

Payable, Loans Payable and Capital among others. Basically, assets, liabilities and equity
accounts are permanent accounts.

They are called permanent accounts because the accounts are retained permanently in
the SFP until their balances become zero. This is in contrast with temporary accounts which
are found in the Statement of Comprehensive Income (SCI). Temporary accounts unlike
permanent accounts will have zero balances at the end of the accounting period.

CONTRA ASSETS – Contra assets are those accounts that are presented under the assets
portion of the SFP but are reductions to the company’s assets.

These include Allowance for Doubtful Accounts and Accumulated Depreciation.

Allowance for Doubtful Accounts is a contra asset to Accounts Receivable. This represents the
estimated amount that the company may not be able to collect from delinquent customers.

Accumulated Depreciation is a contra asset to the company’s Property, Plant and

Equipment. This account represents the total amount of depreciation booked against the fixed
assets of the company.

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Balancing a Statement of Financial Position

When creating a Statement of Financial Position or Balance Sheet for your business it’s
important to understand that, as the name suggests, your Statement of Financial Position must
always be balanced. A Statement of Financial Position is divided into two sections, with one
side representing your business’s assets and the other showing its liabilities and shareholders
equity.

The total value of your assets must be equal to the combined value of your liabilities
and equity. When that’s the case, your document is said to be in balance. This idea is
represented by the foundational formula of balance sheets:

Assets = Liabilities + Shareholder Equity

Why is a Statement of Financial Position Important?

A statement of financial position is an important financial statement that gives a

snapshot of the financial health of your business at a point in time. You can also look at your
balance sheet in conjunction with your other financial statements to better understand the
relationships between different accounts. A statement of financial position is also important
because it provides the following insights about your business:

Liquidity

By comparing your business’s current assets to its current liabilities, you’ll get a clear
picture of the liquidity of your company, or how much cash you have readily available. You
always want to have a buffer between your current assets and liabilities to cover your short-
term financial obligations, with assets always greater than liabilities.

Efficiency

By comparing your income statement to your balance sheet, you can measure how
efficiently your business uses its assets. For example, you can get an idea of how well your
company is able to use its assets to generate revenue.

Leverage

Your balance sheet can help you understand how much leverage your business has,
which tell you how much financial risk you face. To judge leverage, you can compare the debts
to the equity listed on your balance sheet.

Report Form and Account Form

Statement of Financial Position can be presented in either Report form or Account form,
both formats will give the same balances.

Report form is form of the SFP that shows asset accounts first and then liabilities and
owner’s equity accounts after (Haddock, Price, & Farina, 2012).

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 While account form of the SFP that shows assets on the left side and liabilities and
owner’s equity on the right side just like the debit and credit balances of an account (Haddock,
Price, & Farina, 2012).

Report Form

Learning is Fun Company

Statement of Financial Position
As of December 31, 2016

Assets
Current Assets
Cash ₱ 100,000.00
Accounts Receivable 500,000.00
Less: Allowance for Doubtful Accounts (50,000.00) 450,000.00
Accrued Income 300,000.00
Inventory 200,000.00
Prepaid Expenses 50,000.00
Total Current Assets 1,100,000.00
Noncurrent Assets
Long Term Investments 1,250,000.00
Intangible Assets 500,000.00
Property, Plant and Equipment 1,000,000.00
Less: Accumulated Depreciation (300,000.00) 700,000.00
Total Noncurrent Assets 2,450,000.00
Total Assets Php3,550,000.00

Liabilities and Owner’s Equity

Current Liabilities
Accounts Payable 250,000.00
Accrued Expenses 100,000.00
Unearned Income 80,000.00
Notes Payable 1,500,000.00
Total Current Liabilities 1,930,000.00
Noncurrent Liabilities
Mortgage Payable 500,000.00
Loans Payable 650,000.00
Total Noncurrent Liabilities Php 1,150,000.00
Total Liabilities Php 3,080,000.00
Owner’s Equity 470,000.00
Total Liabilities and Owner’s Equity Php 3,550,000.00

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Account Form

Name of Company
Statement of Financial Position
As of (Year-End)

ASSETS LIABILITIES AND OWNER’S EQUITY

Current Assets Current Liability
Cash ₱ 5,000.00 Accounts payable ₱ 22,400.00
Accounts Receivable 2,600.00 Non-current Liability
Supplies 2,300.00 Loans payable 77,500.00
Total Current Assets 9,900.00 Total Liabilities 99,900.00
Non-current Assets Owner’s Equity 40,000.00
Building 113,000.00 Total liabilities and Owner’s ₱ 139,000.00
Equity
Equipment 17,000.00
Total non-current Assets 130,000.00
Total Assets ₱ 139,000.00

Difference of the Statement of Financial Position of a Service Company &

of a Merchandising Company
The main difference of the Statements of the two types of business lies on the inventory
account. A service company has supplies inventory classified under the current assets of the
company. While a merchandising company also has supplies inventory classified under the
current assets of the company, the business has another inventory account under its current
assets which is the Merchandise Inventory, Ending.

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 ’s More

Different Parts of the Statement of Financial Position

Learning is Fun Company
Statement of Financial Position
As of December 31, 2016

Assets CURRENT
Current Asset ASSET
Cash ₱ 100,000.00
Accounts Receivable 500,000.00
Less: Allowance for Doubtful Accounts (50,000.00) 450,000.00
Accrued Income 300,000.00
Inventory 200,000.00
Prepaid Expenses 50,000.00
Total Current Assets 1,100,000.00

NON CURRENT ASSET

Noncurrent Assets
Long Term Investments 1,250,000.00
Intangible Assets 500,000.00
Property, Plant and Equipment 1,000,000.00
Less: Accumulated Depreciation (300,000.00) 700,000.00
Total Noncurrent Assets 2,450,000.00
Total Assets 3,550,000.00

Liabilities and Owner’s Equity

Current Liabilities CURRENT LIABIITIES
Accounts Payable 250,000.00
Accrued Expenses 100,000.00
Unearned Income 80,000.00
Notes Payable 500,000.00
Total Current Liabilities 1,930,000.00

Noncurrent Liabilities NON CURRENT LIABILITIES

Mortgage Payable 500,000.00

Loans Payable 650,000.00
Total Noncurrent Liabilities 1,150,000.00
Total Liabilities 3,080,000.00

Owner’s equity OWNER’S EQUITY 470,000.00

Total Liabilities and Owner’s Equity ₱ 3,550,000.00

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How to Prepare the Statement of Financial Position

a. Prepare the statement heading. This includes the name of the company, name of the
staement and the period covered.
b. Prepare the Asset Section
From the given trial balance, you the bookkeeper or accountant will determine the asset
and contra asset accounts. After which, the assets are categorized as current or non-current.
Finally, the current assets are arranged by liquidity meaning the ease of converting assets
into cash.
c. Prepare the Liabilities Section
As bookkeeper or accountant of the firm will now determine the liability accounts from
the given trial balance. You will then categorize liabilities as current and non current.
Finally the current and non-current liabilities are arranged by liquidity which means the
ease of converting/paying such liablities into cash.
d. Prepare the Owner’s Equity Section
This balances in this section is from the ending balances of the Statement of changes in
Equity.
e. Ensure that the Accounting Equation is balanced.
Finally, as bookkeeper you will ensure that the total assets will equate to
total liabilities and equities. The statement is footed and tested for mathematical accuracy.

Read each item carefully and use your notebook to write your answers.
Classify the following accounts whether they are asset, liability, or equity accounts. For asset
and liability accounts, classify whether they are current or noncurrent.

Account Element Classification

Accounts Payable Liability Current
Accounts Receivable
Cash
Notes Payable
Cash on hand
Salaries Payable
Supplies
Prepaid Rent
Interest Payable
Equipment
Notes Receivables
Dayupay, capital
Dayupay, Drawing

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 I Have Learned

Directions: Complete the following statements. Write your statements in your activity
notebook.

1. As an ABM student, I have learned that the Statement of Financial Position

is_______________________.

2. As an ABM student, it is very important for us to learn Statement of Financial Position

because _______________________.

3. Using the knowledge I have learned in this lesson, I will be able to...
_______________________.

I Can Do

Problem
A. Below are the accounts of Agatha Trading for the year ended December 31, 2019.
Accounts Payable ₱ 100,000.00
Accounts receivable 140,000.00
Capital 1,840,000.00
Cash 1,000,000.00
Inventories 450,000.00
Long term debt 300,000.00
Notes Payable 100,000.00
Notes Receivable 100,000.00
Property, Plant & Equipment 550,000.00
Supplies and other prepayments 100,000.00

Instructions: Prepare a statement of financial position and label its parts. After which, answer
the following questions.

a. How much is the total current asset of the entity?

b. How much is the total non current asset of the entity?
c. How much is the total current liability of the entity?
d. How much is the total non current liability of the entity?
e. How much is the total asset of the entity?

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B. Read each item carefully and use your notebook to write your answers.

a. Prepare a Statement of Financial Position using the following accounts

……(One in report form and one in account form)

Use your name for the name of the company

Cash – 5,000
Loans Payable – 77,500
Accounts Receivable – 2,600
Supplies – 2,300
Equipment – 17,000
Owner’s equity – 40,000
Accounts Payable – 22,400
Building – 113,000

A. Below are the accounts of Nature’s Spring Corp. for the year ended December 31, 2019.
Instructions: Prepare a statement of financial position and label its parts (10 points).

Accounts Payable ₱ 500,000.00

Accounts receivable 180,000.00
Capital 2,040,000.00
Cash 2,000,000.00
Inventories 550,000.00
Long term debt 400,000.00
Notes Payable 640,000.00
Notes Receivable 160,000.00
Property, Plant & Equipment 540,000.00
Supplies and other prepayments 150,000.00

B. Multiple Choice

1. How much is the total current asset of the entity?

a. 3,050,000.00 b. 3,040,000.00 c. 3,000,000.00 d. 3,041,000.00
2. How much is the total non current asset of the entity?
a. 405,000.00 b. 550,000.00 c. 540,000.00 d. 600,000.00
3.How much is the total current liability of the entity?
a. 1,140,000.00 b. 1,240,000.00 c. 1,340,000.00 d. 1,141,000.00
4.How much is the total non current liability of the entity?
a. 400,000.00 b. 640,000.00 c. 300,000.00 d. 401,000.00
5. How much is the total asset of the entity?
a. 3,540,000.00 b. 3,020,000.00 c. 3,005,000.00 d. 3,580,000.00

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References

Licuanan, Patricia B., et al. 2016. Teaching Guide for Senior High School Fundamentals of
Accountancy, Business, and Management 1. Pp. 2-3. Published by the Commission on Higher
Education

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

2 pp.8-11. Published by Lexicon Press, Inc.

Carl S. Warren, James M. Reeve, Jonathan E. Duchac. Accounting 25 th Edition. Pulished by

Cengage Learning.

https://www.freshbooks.com/hub/accounting/balance-sheet

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