Viray, Eunice Mae G.
Abm 12 - Emerald
Fundamentals Of Accounting Business and Management B
The Statement of Financial Position (SFP): its classification, its preparation and its form.
The Statement of Financial Position (SFP), which is also known as the Balance Sheet, shows
the financial position of a business entity at a given period or a specified date.
Its purpose is to help the financial statement users in the assessment of the financial health and
soundness of a business entity in determining its liquidity, financial, credit and business risks.
Three (3) elements: 1. Assets (resources owned and controlled by the business); 2 Liabilities
(obligations owed to someone by the business); and 3. Equity or Owner's Equity (residual
interest of the owners of the business or what was left of the assets after paying the liabilities is
the right of the owners).
1. Assets are divided into current or non-current.
Current Assets- are items that are listed on a business' statement of financial position that are
expected to be used or realized into cash within one
accounting period or a year. It usually includes cash, accounts receivable, inventories and
prepaid expenses.
Classification of Assets, Liabilities and Equity
Cash- is considered the most liquid asset because it is readily available for use. It is used as a
medium of exchange in business transactions and may be held on hand or put in banks for
safekeeping.
Accounts Receivables - are accounts due from customers as a result of sale of goods or for
services rendered that are collectible within one year.
Prepaid expenses - are considered current assets because they are expenses paid in advance
to be consumed within a year.
Inventories - are regarded as a current asset
because these are items held for resale because they are readily available (either raw materials
or finished goods).
Non- Current Assets- are items that are l isted on a business' statement of financial position that
cannot be used or realized into cash within one accounting period or a year. It includes assets
that are long- term in nature like fixed assets, long-term investments and intangibles. Fixed
assets includes Property, Plant and Equipment (Furniture, equipment, land building, vehicles,
etc.) that are used acquired for use in operations and have an estimated useful life of more than
one year.
It includes assets that are long- term in nature like fixed assets, long-term investments and
intangibles. Fixed assets includes Property, Plant and Equipment (Furniture, equipment, land,
building, vehicles, etc.) that are used acquired for use in operations and have an estimated
useful life of more than one year.
Liabilities are also divided into current or non- current.
Current Liabilities- are liabilities that should be paid and realized within a year after the year-
end date.
These include Accounts Payable, Notes Payable, Accrued Expenses and Unearned Income.
Accounts Payable - is amount due to suppliers for the purchase of goods or services received
on accoun t to be paid within a year.
Notes Payable - is account due with supporting promissory notes with short-term mode of
payments.
Non - Current Liabilities
Accrued Expenses - are expenses incurred but not yet paid, examples are Salaries Payable,
Taxes Payable, etc.
Unearned Income - is cash collected or given in advance from customers for future delivery of
goods or services to be performed.
Non- Current Liabilities - are liabilities that are to be paid for more than a year from the year-end
date. These include Loans Payable, Mortgage Payable, etc.
Loans Payable - is account due from third parties which was agreed to be paid for longer terms.
Mortgage Payable is account due from third parties with associated collaterals to be paid for
longer terms.
Equity
Equity or Owner's Equity - is the residual interest of the owners of the business or what was left
of the assets after paying the liabilities is the right of the owners. It includes the Capital and
Drawing accounts.
Capital - is the investment made by the owner to start- up a business in the form of cash or
other assets.
Drawing or withdrawal - is an amount taken by the owner from the business for personal use.
Steps in preparing a simple Statement of Financial Position (SFP):
1. You should start with a heading. The heading includes the name of the business or entity (ex.
JD Gardens), name of the financial statement (ex.
Statement of Financial Position) and the reporting date/ period (ex. As of December 31, 2019).
We use as of inSFP because the amounts (in Philippine Peso) of the items are cumulative from
the start of the operations of the business up to the accounting date.
2. Assets are presented first. These are classified into current and non- current assets.
3. Next is to present the Liabilities. These should also be classified into current and non- current
liabilities.
4. Equity/ Owner's Equity is then added after the liabilities to complete the accounting equation
(Assets= Liabilities + Equity).
Forms of Statement of Financial Position (SFP)
The Statement of Financial Position (SFP) has two forms, the Report form and the Account
Form.
The format in the preparation of the SFP depends on the preference but most financial users
prefer to use the report form because it is easier to read especially when comparing multiple
years SFP.
Report Form- it is a form of SFP wherein accounts are presented vertically, the Assets first,
followed by the Liabilities and then the Equity. The above presented Balance Sheet is an
example of a Report Form SFP. Account Form- it is a form of SFP wherein accounts are
presented horizontally, the Assets are presented on the left side while the Liabilities and the
Equity are on the right side of the Balance Sheet. It will look like the debit and credit balances of
an account.
