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Chapter 1 Statement of Financial Position

By the end of the chapter, learners should be able to identify elements of the statement of financial position (SFP), classify elements as current or noncurrent, prepare an SFP for a single proprietorship using proper report and account forms with current and noncurrent classification. The document defines key elements of the SFP including current and noncurrent assets, current and long-term liabilities, and owner's equity. It provides examples of asset, liability, and equity accounts and how to properly format and present the SFP.

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Martha Nicole Maristela
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337 views3 pages

Chapter 1 Statement of Financial Position

By the end of the chapter, learners should be able to identify elements of the statement of financial position (SFP), classify elements as current or noncurrent, prepare an SFP for a single proprietorship using proper report and account forms with current and noncurrent classification. The document defines key elements of the SFP including current and noncurrent assets, current and long-term liabilities, and owner's equity. It provides examples of asset, liability, and equity accounts and how to properly format and present the SFP.

Uploaded by

Martha Nicole Maristela
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Learning Competencies

By the end of the chapter, the learners must be able to:

a. identify the elements of the SFP and describe each of them


b. classify the elements of the SFP into current and noncurrent items
c. prepare the SFP of a single proprietorship
d. prepare an SFP using the report form and the account form with proper classification of items
as current and noncurrent

CHAPTER 1 STATEMENT OF FINANCIAL POSITION (SFP)

Statement of Financial Position

The statement of financial position is another name for the balance sheet. It is one of the main
financial statements.

The balance sheet presents a company's financial position at the end of a specified date. Some
describe the balance sheet as a "snapshot" of the company's financial position at a point (a
moment or an instant) in time. For example, the amounts reported on a balance sheet dated
December 31, 2018 reflect that instant when all the transactions through December 31 have been
recorded.

Source: https://www.accountingcoach.com/balance-sheet/explanation

Balance Sheet Accounts


Current Assets
An asset shall be classified as current when it satisfies any of the following criteria:
1. It is expected to be realized in, or is intended for sale or consumption in the entity’s normal
operating cycle.
2. It is held primarily for the purpose of being traded.
3. It is expected to be realized within 12 months after the balance sheet date.
4. It is cash or cash equivalent (as defined in IAS 7 Cash Flow Statements), unless it is
restricted from being changed, or used to settle a liability for at least 12 months after the
balance sheet data.

Cash on Hand Coins, currency, check, postal money orders and express money
orders. Cash that is intended to be deposited with the bank when a
petty cash fund is maintained.
Petty Cash Coins, currency and replenishment check.
These are to be used for petty or small payments that cannot be
conveniently made with checks.
Cash in Bank Cash deposited in savings and/or checking accounts. The payments
are made by checks.
Accounts Receivable Amounts due from customers arising from credit sales or credit
services
Notes Receivable Amounts due from others supported by promissory notes.
Merchandise Inventory Stock of gods for sale in the normal course of business
Supplies Materials used in the day-to-day operation of the business
Prepaid Expenses These represent benefits or services still to be received in the future
for advance payment already given by the company.
Other Current Assets All other current asset not classified with the above-mentioned assets
Allowance for Bad Debts Contra asset account representing receivables doubtful of collection

CH1 Statement of Financial Position Handout 2 Page 1


Investments
These are assets not directly identified with the operating activities of a company (as
distinguished from inventories, supplies, plant, property and equipment). They are expected to
contribute to the success of the business by making independent contributions to earnings or
exercising a certain favorable effect upon the sales and operation of the company.

Property, Plant and Equipment or Non-Current Assets


These are assets needed to support the operation of the business, not intended for sale and can
be used for a long period of time.

Land Lot or real estate owned and used by the business on which a
building is constructed.
Building Structure use to house the office, store or factory or plant.
Equipments Computer, airconditioner
Furniture and Fixtures Cabinets, tables, chairs
Accumulated Depreciation Contra asset account representing usage of asset

Liabilities
Debts owing to outside parties or creditors for amount borrowed by the business, or purchases
made by the business or benefits (expenses) received on credit. Liabilities just like assets are
classified into current and non-current.

Current Liabilities
Debts or obligations reasonably expected to be liquidated or paid within a short period of time by
the use of current assets or the creation of other current liabilities.
Accounts Payable To trade creditors for purchase of goods or services on credit
supported by the oral or implied promise of the business.
Notes Payable Debt or obligation evidenced by promissory notes.
Loans Payable To banks and financing institutions for financial assistance received
from them
Utilities Payable To utility companies such as Meralco, PLDT, etc
Taxes Payable To the government
Other Payables Such as interest payable for interest bearing promissory notes,
salary payable to employees

Long Term Liabilities


Obligations payable longer than 1 year.
Mortgage Payable Obligations secured by real estate
Bond Payable Is a liability supported by a formal contract containing the face
value of the bond, the interest rate the interest payment date and
the maturity date.

Owner’s Equity
Represents the claim of the owner over the assets of the business after all liabilities have been
paid.
Owner’s Capital Value of cash and other assets contributed to the business by the
owner. This account is increased by the profits not taken out of the
business or decreased by the losses of the business.
Owner’s Drawings Deductions from owner’s equity when the owner makes withdrawal
from the business.

Forms of Balance Sheet


1. Account Form

CH1 Statement of Financial Position Handout 2 Page 2


 Following the accounting equation lists the assets on the left side column with the libilities
and owner’s equity on the right side column.
2. Report Form
 Shows the assets first, followed by the liabilities and the owner’s equity in one straight
column.

Observe the following rules in preparing the balance sheet:


1. The heading consists of three lines
a. Name of the Business
b. Title of the Report
c. Date
2. Margin on the left side
The extreme mrgin is used for the major classifications like current assets or current liabilities
and the inner margin is used for the detailed computations.
3. Money columns on the right side.
The placement of the amounts usually follows the margins on the left side: extreme money
columns for the major amounts and an inner money column for the details.
4. In the final money column, the peso sign is placed on the first and last amounts; in the inner
money columns, the peso sign is placed on the first figure of every column of figures to be
added or subtracted.
5. A single line or rule is placed under the last figure to be added or subtracted and a double line
or rule is placed under the final figurre.
6. The current assets and current liabilities are arranged according to liquidity. Liquidity is the
ability or ease of an item to be converted into cash.
7. For fixed or non-current asset, land is usually placed first, with the other assets arranged from
the highest to the lowest amount.

References
Frias, Solita A. et al. Fundamentals of Accountancy, Business and Management (A Textbook in
Basic Accounting 1). Phoenix Publishing House. 2016.
Manuel, Zenaida Vera Cruz. The Accounting Process 3rd Edition.

Online References:
https://www.accountingcoach.com/balance-sheet/explanation

CH1 Statement of Financial Position Handout 2 Page 3

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