ACEBA Systems Technology Institute Inc.

Senior High School

Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

Fundamentals of Accountancy, Business and Management 2

Module WEEK 1
Elements of the Statement of Financial Position ASSETS (Cash, Receivables, Inventory,
Prepaid Expenses, Property, Plant and Equipment and Intangible Assets)

The Statement of Financial Position

Objectives:
1. Understand the purpose of the Statement of Financial Position (SFP);
2. Enumerate the basic elements of the Statement of Financial Position;
3. Describe the nature of the accounts reported on the Statement of Financial Position;
4. Prepare Statement of Financial Position using report format and account format;
5. Prepared a classified Statement of Financial Position; and
6. Determine the normal balances of the Statement of Financial Position accounts.

We begin our study of financial statements with the Statement of Financial Position.

Financial Statement- are used by investors, market analysts, and creditors to evaluate a
company's financial health and earnings potential. The three major financial statement
reports are the balance sheet, income statement, and statement of cash flows.

Statement of Financial Position (SFP) -  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.

Figure 1. The Accounting Equation

The balance sheet is divided into two parts. The ASSET are on one side and the
liabilities and equity is on the other side. The total of the assets should equal to the total of the
liabilities and equity.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
Table 1
Statement of Financial Position

As you can see from

our example, each balance
sheet account is listed in the
accounting equation order.
This organization gives
investors and creditors a clean
and easy view of the
company’s resources, debts,
and economic position that
can be used for financial
analysis purposes.
Investors use this information to
compare the company’s current
performance with past performance
to gauge the growth and health of the
business. They also compare this
information with other companies’
reports to decide where the opportune
place is to invest their money.
Creditors, on the other hand, are not
typically concerned with comparing
companies in the sense of investment decision-making. They are more concerned with the
health of a business and the company’s ability to pay its loan payments. Analyzing the
leverage ratios, debt levels, and overall risk of the company gives creditors a good
understanding of the risk involving in loaning a company money.

Obviously, internal management also uses the financial position statement to track
and improve operations over time.

Now that we know what the purpose of this financial statement is, let’s analyze how
this report is formatted in a little more detail.

Format
The statement of financial position is formatted like the accounting equation
 (assets = liabilities + owner’s equity). Thus, the assets are always listed first.

Assets
Assets are resources that the company can use to create goods or provide services and
generate revenues. There are many ways to format the assets section, but the most common
size balance sheet divides the assets into two sub-categories: current and non-current. The
current assets include cash, accounts receivable, and inventory. These resources are
typically consumed in the current period or within the next 12 months.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

The non-current assets section includes resources with useful lives of more than 12
months. In other words, these assets last longer than one year and can be used to benefit the
company beyond the current period. The most common non-current assets include property,
plant, and equipment.

Liabilities
Liabilities are debt obligations that the company owes other companies, individuals,
or institutions. These range from commercial loans, personal loans, or mortgages. This
section is typically split into two main sub-categories to show the difference between
obligations that are due in the next 12 months, current liabilities, and obligations that mature
in future years, long-term liabilities.

Current debt usually includes accounts payable and accrued expenses. Both of these
types of debts typically become due in less than 12 months. The long-term section includes
all other debts that mature more than a year into the future like mortgages and long-term
notes.

Equity
Equity consists of the ownership of the company. In other words, this measures their
stake in the company and how much the shareholders or partners actually own. This section is
displayed slightly different depending on the type of entity. For example a corporation would
list the common stock, preferred stock, additional paid-in capital, treasury stock, and retained
earnings. Meanwhile, a partnership would simply list the members’ capital account balances
including the current earnings, contributions, and distributions.

In the world of nonprofit accounting, this section of the statement of financial position
is called the net assets section because it shows the assets that the organization actually owns
after all the debts have been paid off. It’s easier to understand this concept by going back to
an accounting equation example. If we rearrange the accounting equation to state equity =
assets – liabilities, we can see that the equity of a non-profit is equal to the assets less any
outstanding liabilities.

Does the Balance Sheet always balance?

Notice that the balance sheet is always in balance. Just like the accounting equation,
the assets must always equal the sum of the liabilities and owner’s equity. This makes sense
when you think about it because the company has only three ways of acquiring new assets.

It can use an asset to purchase and a new one (spend cash for something else). It can
also take out a loan for a new purchase (take out a mortgage to purchase a building). Lastly, it
can take money from the owners for a purchase (sell stock to raise cash for an expansion). All
three of these business events follow the accounting equation and the double entry accounting
system where both sides of the equation are always in balance.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

ELEMENTS OF STATEMENT OF FINANCIAL POSITION (SFP)

Statement of Financial Position, also known as the Balance Sheet, presents the

financial position of an entity at a given date. It is comprised of three main
components: Assets, liabilities and equity.

Is a report based on the accounting equation: ASSETS=LIABILITIES+ OWNER’S

EQUITY. This equation most students called ALOE. The sum of the assets should be
“BALANCED” to the sum of the LIABILITIES and EQUITY. The SFP is “balanced” as a
consequence of DOUBLE ENTRY ACCOUNTING.

Assets
1. Cash
2. Receivables
3. Inventory
4. Prepaid expenses
5. Property, Plant and Equipment
6. Intangible Assets

1. Cash
The most well known asset. Cash is a money owned by the company.

Cash on Hand- cash kept in the company’s premises.

Cash on hand includes bills, coins and bank checks kept in the premises of the
company. Bank checks or checks are bank documents used by the issuer to instruct the bank
to pay the assigned payee from funds in the issuer’s bank account. Checks maybe reported as
a part of cash because these documents are accepted as payments and deposits. A check is
classified as a cash if the date of the check is on or before the SFP date.
Cash equivalents are technically not cash because it is not immediately available for
use. It is almost cash in the sense that it will become cash within the next 90 days. Time
deposits with term maturities of ninety days or less are examples of cash equivalents. The line
account is CASH AND CASH EQUIVALENTS. The components of cash and cash
equivalents (cash on hand, cash in bank, cash equivalents) are required to be disclosed in the
accompanying notes to financial statements.

Cash on Bank- refers to money in the bank which can be kept in a savings or checking
account.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

ASTI Convenience Store: CASH

ASTI Convenience Store is managed by Juan Dela Cruz asked you to
determine the balance of his cash account of December 31, 20X1. You determined
the following:
1. He kept some cash in the store as changed fund (sukli). The cash count
revealed 3 pieces of 100 peso bills, 5 pieces of 50 pesos bills, 5 pieces of 20
pieces bills, 5 pieces of 10 peso coins, 10 pieces of 5 peso coins, 10 pieces of
1 peso coins and 25 pieces of 25 centavo coins.
2. Two of his regular customers gave Juan the following checks in payment of
debts:
a. P1,540 checked dated December 31, 20X1.
b. P2,432 checked dated January 3, 20X2.
3. There are two bank accounts in the name of the store with the following
balances:
a. Balance of the savings account on December 31, 20X1 according to the
passbook Number
Denomination is P26,780.
of Peso Amount
b. A time deposit Bills
certificate for P100,000 for 90 days.
P100 to Juan Dela Cruz
Report 3 P300.00
the balance of the cash and cash equivalents account of
ASTI
P50 Convenience Store. 5 250.00
P20 5 100.00
P10 (coins) 5 50.00
P5 (coins) 10 50.00
P1 (coins) 10 10.00
P0.25 (coins) 25 6.25
Checks 1,540.00 Dated December 31,
20X1

Total Cash on Hand P2,306.25

Cash in Bank P26,780.00
ANSWER
Total Cash P29,086.25
Cash Equivalents P100,00.00
Total Cash and Cash Equivalents P129,086.25
Notes:
1. The P2,432 check dated January 3, 20X2 is a post-dated check. It is not cash as of
December 31, 20X1.
2. The time deposit certificate for P100,000.00 for 90-days will not meet the definition
of cash. It is classified as cash equivalents.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

2. Receivables- also referred to as accounts receivable, are debts owed to a company by its

customers for goods or services that have been delivered or used but not yet paid for.
There are also receivables that may be settled in other assets or services.
Example: Receivable from suppliers may be settled in merchandise.

Cash on Delivery (COD)

A sale agreement may require a costumer to pay the seller immediately upon delivery
of goods. In contrast to COD, a customer may instead promise to pay the seller at some future
time after delivery. This is a credit sales agreement and it gives rise to Accounts Receivables.

Account Receivable- is the balance of money due to a firm for goods or services delivered or
used but not yet paid for by customers. Accounts receivables are listed on the balance sheet
as a current asset. AR is any amount of money owed by customers for purchases made on
credit. Account receivable normally has a term of 30 days which means a customer should
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

pay 30 days from date of delivery. Some sellers are more lenient and give terms of 60, 90 and
180 days.

Notes Receivable- is an account on the balance sheet usually under the current assets section
if its life is less than a year. Specifically, a note receivable is a written promise to receive
money at a future date. The money is usually made up of interest and principal. It is
evidenced by promissory notes. Promissory notes is a legal document that says the borrower
promises to pay, on scheduled payment dates, a specific sum called the principal and interest
based on principal and stated interest rate.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

ASTI Convenience Store: ACCOUNTS RECEIVABLE

(Continuation)
Juan asked you to compute how much Roberta owed the store. Juan sells to
Roberta on credit.. Roberta pays every 15 th and 30th of the month. Roberta’s listing
are reproduced below:
Roberta Reyes

Balance P124.00
September 5 2 bottles of cola (P12 each)
September 15 1 bar of laundry soap (P50)
October 3 1 sachet of fabric softener(P50)
October 8 1 small can of sardines (P25)
October 15 Payment: P200.00
October 25 2 bags of chips (P30 each)
October 30 Payment: P100.00
November 16 1 sachet of laundry soap (P50)
November 22 2 kilo of rice (P44 per kilo)
November 30 Payment: P100.00
December 1 5 sachet of shampoo (P15)
December 15 Payment: P100.00
December 22 1 small can of sardines (P25)
December 27 2 kilo of rice (P44)
December 28 1 small bar of bath soap (P20)
December 29 5 sachets of shampoo (P15)
December 30 Payment: P100.00
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

ANSWER

Roberta Reyes
Balance P124.00
September 5 2 bottles of cola (P12 each) 24.00
September 15 1 bar of laundry soap (P50) 50.00
October 3 1 sachet of fabric 50.00
softener(P50)
October 8 1 small can of sardines (P25) 25.00
October 15 Payment: P200.00 (200.00)
October 25 2 bags of chips (P30 each) 60.00
October 30 Payment: P100.00 (100.00)
November 16 1 sachet of laundry soap (P50) 50.00
November 22 2 kilo of rice (P44 per kilo) 88.00
November 30 Payment: P100.00 (100.00)
December 1 5 sachet of shampoo (P15) 75.00
December 15 Payment: P100.00 (100.00)
December 22 1 small can of sardines (P25) 25.00
December 27 2 kilo of rice (P44) 88.00
December 28 1 small bar of bath soap (P20) 20.00
December 29 5 sachets of shampoo (P15) 75.00
December 30 Payment: P100.00 (100.00)
Net Receivable P154.00

3. Inventory
It reports the cost of unsold merchandise. Is the term for the goods available for sale
and raw materials used to produce goods available for sale. Inventory represents one of the
most important assets of a business because the turnover of inventory represents one of the
primary sources of revenue generation and subsequent earnings for the company's
shareholders.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

Consignment is an important issue in inventory accounting. The owner places his

goods “on-consignment” in premises of the store owner. The store is not obligated to
purchase the goods. The owner may also withdraw his unsold goods from the store at any
time. The store owner, on the other hand, will remit to the merchandise owner to proceeds
from the sale of the consigned items.

Inventory can be valued in three ways. The first-in, first-out (FIFO) method says

that the cost of goods sold is based on the cost of the earliest purchased materials, while the
carrying cost of remaining inventory is based on the cost of the latest purchased materials.
The last-in, first-out (LIFO) method states that the cost of goods sold is valued using the
cost of the latest purchased materials, while the value of the remaining inventory is based on
the earliest purchased materials. The weighted average method requires valuing
both inventory and the cost of goods sold based on the average cost of all materials bought
during the period.

ASTI Convenience Store: INVENTORY

(Continuation)

Before Juan opened the store on January 1, 20x2, he asked you to help his count the
merchandise inside the store. The result of the count are given below:

Merchandise Cost
2 bags of candy P30/bag
10 sachets of coffee P6/sachet
10 sachets of laundry powder P15/sachet
1 sack of rice P1,800/sack
10 cans of sardines P15/can
10 chocolate bars P20/bar
5 notebooks P25/notebook
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

ANSWER

Merchandise Cost Total

2 bags of candy P30/bag P60.00
10 sachets of coffee P6/sachet 60.00
10 sachets of laundry powder P15/sachet 150.00
1 sack of rice P1,800/sack 1,800.00
10 cans of sardines P15/can 150.00
4 notebooks (see no.2 below) P25/notebook 100.00
Merchandise Inventory as of December 31, 20X1 P2,320.00

Notes:

1. The 10 chocolate bars are not owned by the store. It was on Consignment from Tsokolate-
Eh.
2. Only 4 notebooks were for sale. One was used as office supplies in the store.

4. Prepaid Expenses
Refer to future expenses that the company had paid in advance. A type of asset on
the balance sheet that results from a business making advanced payments for goods or
services to be received in the future. Prepaid expenses are initially recorded as assets, but
their value is expensed over time onto the income statement. Unlike conventional expenses,
the business will receive something of value from the prepaid expense over the course of
several accounting periods.

Here are some example of Prepaid expenses

 Rent (paying for a commercial space before using it)
 Small business insurance policies.
 Equipment you pay for before use.
 Salaries (unless you run payroll in arrears)
 Estimated taxes.
 Some utility bills.
 Interest expenses.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

ASTI Convenience Store: PREPAYMENTS

(Continuation)

Juan paid premium of P2,500 for one-year fire insurance in the name of the store on
October 1, 20X1. How much should prepaid insurance be on December 31, 20X1?

ANSWER

Insurance premium is paid in advance. In the case of the ASTI Convenience Store, the
P2,500 premium payment was for insurance from October 1, 20X1 to September 30, 20X2. As
of December 31, 20X1, 3 months had already passed and considered expense. Therefore, only 9
months is Prepaid expense
We compute the Prepaid Expense as P2,500 X 9/12=P1,875

5. Property, Plant and Equipment

PPE for short, a long term asset that are used in the operations of the company. These
are classified as long-term asset (or non-current asset) because this asset will be used in
the business for more than one year. Examples of such asset classified as PPe are land,
building, warehouse, automobiles, delivery vehicle, computer equipment and
manufacturing equipment. Rented facilities and equipments are excluded from PPE.
Depreciation- accounting method of allocating the cost of a tangible or physical asset
over its useful life or life expectancy. Depreciation represents how much of an asset's
value has been used up. Depreciating assets helps companies earn revenue from an asset
while expensing a portion of its cost each year the asset is in use. If not taken into
account, it can greatly affect profits.
The cost of the PPE, net of the balance of accumulated depreciation as of the SFP date
is called Net Book Value of the PPE. Not all PPe’s are subject to depreciation. Land is
not depreciated because this asset does not have a useful life. More so, the value of Land
ASTI Convenience Store: PROPERTY, PLANT AND EQUIPMENT
increases with the passage of time.
(Continuation)

On January 1, 20X0, Juan purchased an electronic cash register to be used in the ASTI
Convenience Store. The cash register was purchased at a cost of P15,000. Juan depreciates the
cash register over five years. Determine the following:
1. Equipment
2. Annual depreciation
3. Accumulated depreciation as of December 31, 20X1
4. Net book value of Equipment as of December 31, 20X1
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

ANSWER

Cost of Electric cash register P15,000

Estimated useful life (in years) 5
Annual depreciation (P15,000/5 years) P3,000
Number of years depreciated (20X0-20X1) 2
Accumulated depreciation (P3,000 X 2) P6,000
Net book value (P15,00-P6,000) P9,000

6. Intangible Assets- are long-term assets similar to PPE. These asset will be used in the
business for more than one year. The allocation of the cost of intangible assets to the year
called amortization. It is computed similar to depreciation such that the cost of the asset
is amortized evenly over its useful life. The main difference between the two asset is
intangible assets have no tangible properties. These are assets that you cannot see or
touch.
Example of Intangible Asset- Patent, Brand name and trademark.

Patent-is a form of intellectual property that gives its owner the legal right to exclude others
from making, using, or selling an invention for a limited period of years in exchange for
publishing an enabling public disclosure of the invention.

Brand Name- name given by the maker to a product or range of products, especially a
trademark.
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

Trademark-a symbol, word, or words legally registered or established by use as representing

a company or product.

Activity No. 1

1. What is the other name for SFP?

2. What are the elements of the SFP?
3. What is an asset?
4. What is a liability? Differentiate liability from equity?

Identify the assets described below;

5. Money in the bank in the premises of the company.
6. Asset that can be used in the company’s business over many years.
7. Unsold goods that were purchased to be sold to the company’s costumers.
8. The company’s right to clam payments as evidenced by a promissory note signed by
the debtor.
9. The company’s right to collect from the customer because delivery of goods and
services have been completed.
10. Advance payments for expenses such as cellphone loads.
11. A class of PPE that is not subject to depreciation.