Archdiocese of Lingayen-Dagupan Catholic Schools

SAINT CHARLES ACADEMY

Senior High School Department
Malong St. San Carlos City, Pangasinan
SY: 2022-2023

Learning module
On

Fundamentals of Accountancy,
Business and Management 2

Module 1:
Statement of Financial Position
After going through this module, you are expected to:

1. Identify the elements of the Statement of Financial Position (SFP) and describe each item
(ABM_FABM12 – Ia-b-1):

2. Prepare an SFP using the report form and the account form with the proper classification
of items as current and non-current. (ABM_FABM12 – Ia-b-4).

Concept Notes

I. THE ELEMENTS OF THE STATEMENT OF FINANCIAL POSITION

1. Assets are the resources with future benefits that are within the control of the company.
Resources are classified into accounts based on its future use to the company. Assets are recorded in the
books of accounts with a normal debit balance. There are the classification of assets; current and non
current assets.

Current assets are assets that can be realized (collected, sold, used up) one year after year-end
date. Examples include Cash, Receivable, Merchandise Inventory and Prepaid Expenses.

a. CASH is any item on hand with monetary value that a bank will accept for deposit and all small
amounts currently on deposit with the bank in the name of business. This includes coins and currencies,
personal checks, money orders, traveler’s checks made payable to the business and bank drafts. Also
included are any funds that are currently on deposit at a bank and readily available as checking and
savings account

b. RECEIVABLES refers to the company’s right to collect or claim payment. Accounts Receivables
are amounts due from customers arising from credit sales or credit services. Notes Receivable is another
kind of receivable. It is evidenced by promissory notes. Promissory notes is a legal document that says the
borrower promises to pay on scheduled payments dates, a specific sum called the principal and interest
based on principal and stated interest to sign a promissory note. The company may also lend to its
employees or other companies is the company has excess cash.

c. INVENTORIES are assets held for sale in the normal operation of the business, in the process of
production for sale, or in the form of materials or supplies to be consumed in the production process or in
the rendering of services. Examples are merchandise inventory, work-in-process inventory, and raw
materials inventory.

d. PREPAID EXPENSES are expenses paid in advance. It is placed in this account until the
services or items are used and become expenses. Recall the concept of accrual discussed in FABM 1,
expenses are recorded only when purchased goods and services are used.

For example, prepaid subscribers in buying load or cards, they essentially pay the phone
companies prior to using their services. On the other hand, post paid subscribers pay only after they are
billed for the services used. Accrual accounting states that expense is recognized only when phone
services are used, regardless of whether they are prepaid or post-paid subscribers – it is Prepaid Expense.
When the load is consumed, the cost of the card is transferred out to Prepaid Expense and into
Communication/Telephone Expense.

Another kind of prepaid expense is Insurance. The insured will pay premium at the beginning
of contract period and the insurer (insurance company) will reimburse the insured party for losses if the
insured event occur.

Non current assets are assets that cannot be realized (collected, sold, used up) one year after the
year-end date. Examples include Property, Plant and Equipment (equipment, furniture, building, land)
and Long-term investments.
a. PROPERTY, PLANT AND EQUIPMENT or PPE for short, are long-lived assets which have
been acquired for use in operations. Only those assets owned and controlled by the company will be
recorded as PPE. Rented facilities and equipment are excluded from PPE.

b. LONG-TERM INVESTMENTS are intangible assets like PPE. The allocation of the cost of
intangible assets to the year it was used is called amortization. It is computed like depreciation such that
the cost of the asset is amortized evenly over its useful life. The main difference between the two assets is
that intangible assets have no tangible properties. These are assets that you cannot touch or see. There
may be a piece of paper as evidence of the asset, but the actual asset is “intangible”. Some examples of
Intangible assets are patent, brand name and trademark. A patent is a grant conferred by the government
to the creator of an invention for a specified period. In recent years, the patent infringement cases between
Samsung and Apple filled the business news. Brand-name refers to word or words used to identify a
specific product and its manufacturers. Famous brands include Jollibee, McDonalds, Apple, Coca-Cola,
Samsung, and Nike. Trademark is the symbol that represents the brand. For example, red happy bee for
Jollibee, tall clown in stripes for McDonalds, a checkmark for Nike.

Contra Valuation Accounts:

● Allowance for doubtful accounts – refers to an amount estimated uncollectible on receivable

in compliance with the principle of conservatism. It is credited to serve as a contra account for
the related receivable. Other terms used to describe this account are “allowance for uncollectible
account” and “allowance for bad debts”.
● Accumulated Depreciation – the aggregate periodic costs of using a depreciable plant asset. In
accordance with the systematic cost allocation principle, the acquisition cost or depreciable plant
asset should be allocated as expense over its useful life. Examples are accumulated depreciation
of building, accumulated depreciation of equipment, etc.

2. Liabilities these are present obligations to pay cash or cash equivalents by an entity. In other
words, they represent claims against the assets of the business. Liabilities have normal credit balance.
These are the classification of liabilities, current and non-current liabilities.
Current Liabilities are liabilities that fall due (paid, recognized as revenue) with one year after
year-end date. Examples include Accounts payable, Notes payable, Accrued Expenses, Unearned Income.

a. ACCOUNTS PAYABLE an obligation or debt to creditors for money borrowed or merchandise

and other assets bought on credit.

b. NOTES PAYABLE a promissory note issued by the business to its creditors for money borrowed
or merchandise and other assets bought on credit.

c. ACCRUED EXPENSES are expenses that are incurred but not yet paid. Examples are salaries
payable, taxes payable)

d. UNEARNED INCOME is cash collected in advance; the liability is the services to be performed
or goods to be delivered in the future.

NON-CURRENT LIABILITIES are liabilities that do not fall due (paid, recognize as revenue)
within one year after year-end date.

a. LOANS PAYABLE

b. MORTGAGE PAYABLE

3. Equity is the residual amount after deducting liabilities from assets. It comprises the capital
contribution of the owner and withdrawals by the owner. It is increased by capital contribution of the
owner and net income of the business and decreased by the owner’s withdrawals and net losses of the
business.

Owner’s Equity is described as owner’s capital (sole proprietorship), partner’s capital (partnership) and
shareholders’ equity (corporation). These accounts have normal credit balances.

● Drawing is a temporary account used initially the amount taken by the owner from the business.
This is closed to the capital account of the owner at the end of accounting period.
II. CLASSIFICATIONS IN PREPARING SFP
1. ACCOUNT FORM

2. REPORT FORM
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
Module 1 Activity

Name: ______________________________ Score: ________________

Section & Strand: 12- Date: _________________
Subject Teacher: ______________________

Activity Sheets:
Note!!! Detach only the Activity Sheets and submit it to your subject teacher!

Activity 1: History of accounting

Directions: Research and summarizes into two paragraphs(minimum) the history of accounting. (Use
the back portion of the paper as your answer sheet.)

Activity 2: Accounting Equation

FILL IN THE AMOUNT TO COMPLETE THE ACCOUNTING EQUATION
ASSETS LIABILITIES OWNER’S EQUITY
a. P 760,000 P 360,000 ?
b. P 860,000 ? P 592,000
c. ? P 108,000 P 760,000
d. P 626,600 P 376,240 ?
e. ? P 800,000 P (100,000)
f. P 315,000 ? P 315,000
g. ? P 35,000 P 73,000
h. P 215,000 P 65,000 ?

Activity 3: What is this Signal Word?

Direction: Indicate whether the normal balance of the account is debit or credit and whether
the increase or decrease of the said account should be debit or credit.

PARTICULARS NORMAL BALANCE INCREASE/DECREASE

1. Accounts receivable increased
2. Inventory decreased
3. Cash increased
4. Loans payable in bank was paid in full
5. Payment of expense

Activity 4: Journal Entries

Direction: Prepare the journal entries of the following transactions below. use the space
below or the back of this page for your solution.

On March 1, 2018, Theodore Calaguas, M.D., established the Calaguas Sports Clinic. Use the
following accounts: Cash; Supplies; Office Equipment; Accounts Payable; Calaguas,
Withdrawal and Calaguas, Capital. Transactions completed during the month of March are as
follows:

a. Calaguas deposited P 250,000 in a bank account in the name of the business

b. Bought supplies on account from Shaw Book Store, P11,700.
c. Bought office equipment on account from Marikina Office Warehouse, P8,640.
d. Settled a portion of the accounts with Rizal Machines, P18,500.
e. Calaguas withdrew cash for personal use, P16,000.