Republic of the Philippines

Department of Education
REGION VIII – EASTERN VISAYAS

Division of Northern Samar

CATARMAN NATIONAL HIGH SCHOOL
Senior High School Department

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT 2

GRADE 12

QUARTER 1
MODULE 1

STATEMENT OF FINANCIAL POSITION

Performance Standard: The learners are able to solve exercises and problems that require preparation
of an SFP for a single proprietorship with proper classification of accounts as current and noncurrent
using the report form and the account form.

MELC:
 Identify the elements of the SFP and describe each of them (ABM_FABM12-Ia-b-1)
 Prepare an SFP using the report form and the account form with proper classification of items as
current and noncurrent
(ABM_FABM12-Ia-b-4)
DATE: OCTOBER 5-9, 2020
DURATION: 1 week (4 hours)

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 What I Need to Know

LEARNING OBJECTIVES:
At the end of the week, it is expected that the learners must be able to:
Understand the purpose of the Statement of Financial Position (SFP);
Enumerate the basic elements of the Statement of Financial Position (SFP);
Describe the nature of the accounts reported on the Statement of Financial Position (SFP);
Prepare Statement of Financial Position using report format and account format;
To correlate the essence of Statement of Financial Position (SFP) during the situational crisis
their families are facing with this pandemic.

What I Know

As a prerequisite to FABM2 is FABM1. You must recall through your stock knowledge the
Elements of Financial Statements. The basic purpose of accounting is to provide information that is
useful for making economic decision Accounting information is most commonly communicated to
users of accounting information through the financial statements.
INSTRUCTION: Fill in the blanks with the correct answer (Critical Thinking, Communication
and Collaboration)
_______1. The book of original entry.
_______2. Assets are equal to liabilities and owner’s equity
_______3. Users of accounting information is mostly communicated
_______4. Are what the company owns.
_______5. Are what the company owed.
_______6. Inflows of cash because of services rendered.
_______7. Assets from cash spent because of sales of goods.
_______8. The second accounting cycle.
_______9. The book of the final entry.
_______10. The next cycle after journalizing.

Write True if the statement is correct and False if the statement is incorrect (Collaboration)
_______1. The left side of the account is Debit.
_______2. The permanent accounts are the nominal account.
_______3. The right side of the account is credit.
_______4. The elements of the statement of financial position are Assets and expenses.

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_______5. Current Assets are easily convertible into cash within the normal operating cycle of the
business.
_______6. The elements of Statement of financial position are Assets, Liabilities and Owner’s
Equity account.
_______7. Kinds of Assets are Current Assets and Non-Current Assets
_______8. Kinds of Liabilities are Current Liabilities and Non-Current Liabilities.
_______9. Under owner’s Equity Account includes Capital, Owner’s Withdrawal, Revenue and
Expenses.
_______10. Account form and Report form are the two kinds of forms of the Statement of Financial
Position.

 FINANCIAL STATEMENT
Philippine Accounting Standard (PAS) No. 1, the objective of financial statement is
to provide information about the financial position, financial performance, and cash
flows of an entity that is useful to a wide range of users in making economic
decisions. An entity shall present with equal prominence all of the financial
statements in a complete set of financial statements.
 COMPELETE SET OF FINANCIAL STATEMENTS
Per revised PAS No. 1, a complete set of financial statements comprises:
 A statement of financial position as at the end of the period;
 A statement of comprehensive income for the period;
 A statement of changes in equity for the period;
 A statement of cash flows for the period;
 Notes, comprising a summary of significant accounting policiesand other
explanatory information; and
 A statement of financial position as at the beginning of the earliest
comparative period when an entity applies an accounting policy
retrospectively or makes a retrospective restatement of items in its financial
statements or when a reclassifies items in its financial statements.

I. STATEMENT OF FINANCIAL POSITION

reports all assets, all liabilities, and owner’s equity of the business at the end of the
period. No other financial reportss assets and liabilities.
reports that total assets equal the sum of total liabilities plus total owner’s equity.
This balancing feature gives the statement of financial position or the balance sheet
statement its name; it is based on the accounting equation.
the information needed for this statement are the net balances at the end of the period,
rather than the total for the period as in the income statement.
this statement is also called the Balance Sheet
users of financial statements analyze the balance sheet to evaluate an entity’s
liquidity, its financial flexibility, and its ability to generate profits, and its solvency.

 DEFINITION OF TERMS
 LIQUIDITY
refers to the availability of cash in the near future after taking account of the financial
commitments over this period.

 FINANCIAL FLEXIBILITY
the ability to take effective actions to alter the amounts and timings of cash flows so
that it can respond to unexpected needs and opportunities. This includes the ability to
raise new capital or tap into unused lines of credit.

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  SOLVENCY
refers to the availability of cash over the longer term to meet financial commitments
as they fall due.

 PERMANENT ACCOUNTS
these accounts are permanent in a sense that their balances remain intact from one
accounting period to another. (Haddock, Price, Farina, 2012).
common examples of permananent account include cash, accounts receivable,
accounts payable, loans payable and capital among others.
basically, assets, liabilities and equity accounts are retained permanently in the
Statement of Financial Position (SFP). 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
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

a contra asset account to accounts receivable

 ACCUMULATED DEPRECIATION
a contra asset to the company’s Property, Plant and Equipment. This account
represents the total anount of depreciation booked against the fixed assets or
noncurrent assets of the company.

II. ELEMENTS OF THE STATEMENT OF FINANCIAL POSITION

1. ASSETS
these include anything owned or possesed by the business which can be expressed
in terms of money or are possessing monetary values, and which, consequently, are
availabke for the payment of the debt of the business. In short, assets represent the
resources of the business.

A. CLASSIFICATION OF ASSETS
 CURRENT ASSETS
Philippine Accounting Standard (PAS) No, 1, an entity classify assets as current when:
it expects to realize the asset, or intends to sell or consume it, in its normal
operating cycle;
it holds the assets primarily for the purpose of trading;
it expects to realize the asset within twelve months after the reposting period;
the asset is cash or a cash equivalent unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the reporting
period.

a. CASH
any medium of exchange that a bank will accept for deposit at face value. It includes
coins, currency, checks, money orders, bank deposits and drafts.
any money owned by the company
refers only to funds readily available to be spent for the company’s operation
 Cash in Bank
o refers to money in the bank which can be kept in a savings or checking
account
 Cash on hand
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 o cash kept in the company’s premises.

b. CASH EQUIVALENTS
these are short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.

c. RECEIVABLES
a general term that refers to the company’s right to collect or claim payment. The
right to collect comes from the unpaid sales or lending activities. Generally, the
company collects cash from its receivables.

 Notes receivable
o a written pledge that the customers will pay the business a fixed amount of
money on a certain date.
o it is evidenced by promissory notes. Promissory notes (PN) is a 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.
 Accounts Receivable
o are claims against customers arising from sale of services or goods on
credit. This type of receivable offers less security than a promissory note.
d. INVENTORIES
These are assets which are (a) held for sale in the ordinary course of business; (b) in the
process of production for such sale; or (c) in the form of materials or supplies to be
consumed in the production process or in the rendering of services.
the inventory account repots the cost of unsold merchandise. The inventory account
of a trading business contains merchandise held for resale. A manufacturing company
will have more complex inventories composed of raw materials, unfinished
inventories in the middle of the manufacturing process (may also be called work in
process), and unsold finished goods.
Consignment is an important issue in inventory accounting. The owner places his
goods “on-consignment” in the premises of the store owner.
only merchandise held for sale are reported as inventory. Those items that are to be
used in the day to day activities of the company are supplies and not inventory.

e. PREPAID EXPENSES
these are expenses paid for by the business in advance. It is an asset because the business
avoids having to pay cash in the future for a specific expense. These include insurance and
rent. These prepaid items represent future economic benefits-assets-until the time these start
to contribute to the earning process; these, then, become expenses.

 Prepaid insurance
o This is the part of the premium cost of all kinds of insurance carried by the
business after the Statement of Financial Position date. Prepaid insurance is
always classified as a current asset even if the amount of the unexpired premiums
covers a period longer than one year which is the time limit applied when
defining current assets.

 Prepaid rent
o This is the rent paid by the business for facilities to be used after the Statement of
Financial Position date. For example, on December 1, 2020, a business paid
P30,000.00 for December, January and February rent. On a Statement of
Financial Position dated Decemebr 31, 2020, the amount of Prepaid Rent would
be shown as P20,000.00 the amount paid for the use of the facilities for January
and February (10 x 2).

 NON CURRENT ASSETS

Assets that cannot be realized (collected, sold, used up) one year after year-end date.

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 a. PROPERTY, PLANT AND EQUIPMENT
These are tangible assets that are held by an enterprise for use in the production or supply
of goods or services, or for rental to others, or for administrative purposes and which are
expected to be used during more than one period. Included are such items as land,
building, machinery and equipment, furniture and fixtures, motor vehicles and equipment.

 Land
o The cost of land the business uses to carry on its activities or the lot on which its
factory or office building stands.
 Equipment
o The original cost less the accumulated depreciation is shown to give the
depreciated value of the equipment used in the operations of the business. The
title equipment may also be separated into whatever special assets of this type the
business cares to identify. The business may use such titles as Office Equipment
for the value of the adding machines, calculators, and computers the office
employees use, and Delivery Equipment for the value of the trucks and
automobiles the business uses to deliver its merchandise to customers.
 Furniture and Fixtures
o the orginal cost less the accumulated depreciation is shown to give the
depreciated value of furniture and fixtures used in the operation of the business.
The title Furniture and Fixtures almost explains it and may also be subdivided.
Desks, chairs, cabinets, and counters used by office employees might be listed as
Office Furniture and Fixtures. Display cases, chairs used by customers, and
merchandise counters in a department store could be entitled Store Furniture and
Fixtures.

b. ACCUMULATED DEPRECIATION
A contra account that contains the sum of the periodic depreciation charges. The balance in
this account is deducted from the cost of the related asset-equipment or buildings -to obtain
book value,

c. INTANGIBLE ASSETS
These are identifiable, nonmonetary assets without physical substance held for use in the
production or supply of goods or services for rental to others, or for administrative
purposes. These include goodwill, patents, copyrights, licenses, franhises, trademarks,
brand names, secret processes, subscriptions lists and non-competition agreements.

2. LIABILITIES
 CURRENT LIABILITIES
It expects to settle the liability in its normal operating cycle;
It holds the liability primarily for the purpose of trading;
The liability is due to be settled within twelve months after the reporting period; or
The entity does not have an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period.

a. ACCOUNTS PAYABLE
this account represent the reverse relationship of the accounts receivable. By
accepting the goods or services, the buyer agrees to pay for them in the near future.

b. NOTES PAYABLE
is like a note receivable but in a reverse sense. In the case of a note payable, the business
entity is the maker of the note; that is, the business entity is the party who promises to pay
the other party a specified amount of money on a specified future date.

c. INTEREST PAYABLE
this is the amount of interest owed by the business as of Statement of Financial Position
date for money borrowed on interest bearing promissory notes issued by the firm. This
interest debt builds up each day. The loan is outstanding-the interest accrues-and it is
shown as a separate liability apart from the face value of the note, which appears in the
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 Notes payable account.

d. DEFERRED OR UNEARNED REVENUE

when the business entity receives payment before providing its customers with goods or
services, the amounts received are recorded in the unearned revenue account (liability
method). When the goods or services are provided to the customer, the unearned revenue is
reduced and income is recognized.
refers to income already collected but not yet earned. For example, rental payment
received by the lessor from the lessee may be treated as unearned rent income by the
former (lessor).

e. TAXES PAYABLE
this is the amount of taxes owed by the business as of Statement of Financial Position date.

f. CURRENT PORTION OF LONG-TERM DEBT

these are portions of mortgage notes, bonds and other long-term indebtedness which are to
be paid within one year from the balance sheet date.

g. ACCRUED EXPENSES
refers to the unpaid expenses of the company as of the cut-off date of the Statement of
Financial Position.

 NON CURRENT LIABILITIES

a. MORTGAGE PAYABLE
This account records long-term debt of the business entity for which the business entity
has pledged certain assets as security to the creditor. In the event that the debt payments
are not made, the creditor can foreclose or cause the mortgaged asset to be sold to
enable the entity to settle the claim.

b. BONDS PAYABLE
Business organizations often obtain substantial sums of money from lenders to finance
the acquisition of equipment and other needed assets. They obtain these funds by
issuing bonds. The bond is a contract between the issuer and the lender specifying the
terms of repayment and the interest to be charged.

c. NOTES PAYABLE LONG TERM

these are amounts on signed formal notes due after one year from the date of the
Statement of Financial Position.

d. INSTALLMENT CONTRACTS PAYABLE

these are amounts payable after one year from the Statement of Financial Position date
on long-term installments notes such as those signed by the consumers when buying
automobiles and household appliances. Installments due within one year from the
Statement of Financial Position date are listed as current liabilities.

3. OWNER’S EQUITY
a. CAPITAL
(from the Latin capitalis, meaning “property”). This account is used to record the original
and additional investments of the owner of the business entity. It is increased by the
amount of profit earned during the year or is decreased by a loss. Cash or other assets that
the owner may withdraw from the business ultimately reduce it. This account title bears the
name of the owner.

b. WITHDRAWALS
when the owner of a business entity withdraws cash or other assets such as are recorded
in the drawing or withdrawal account rather than directly reducing the owner’s equity
account.

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 c. INCOME SUMMARY
It is a temporary account used at the end of the accounting period to close income and
expenses. This account shows the profit or loss for the period before closing to the capital
account.

III. FORMS OF THE STATEMENT OF FINANCIAL POSITION AND ITS

PRESENTATION

a. ACCOUNT FORM
in the account form of Statement of Financial Position, the assets are listed on the left
side of the report and the liabilities and proprietorship on the right side.
Charlotte’s Designer and Tailoring Shop
Statement of Financial Position
December 31, 2019

Assets Liabilities nad Owner’s Equity

Current Assets Current Liabilities

Cash P 168,500.00 Accounts Payable P 20,000.00
Accounts receivable 23,000.00 Non-Current Liabilities
Sewing Supplies 21,500.00 Notes payable due 2021 80,000.00

Total Current Assets P 212,750.00 Total Liabilities P 100,000.00

Non-current Assets Owner’s Equity

Property, Plant & Equipment (Note 1) 249,500.00 Charlotte De Jesus Capital 362,250.00

Total Assets P 462,250.00 Total Liabilities & Owner’s Equity P 462,250.00

b. REPORT FORM
A statement of Financial Position prepared in report form shows the assets on the top
section of the statement and the liabilities and owner’s equity on the bottom section.

Charlotte’s Designer and Tailoring Shop

Statement of Financial Position
December 31, 2019

Assets

Current Assets
Cash P 168,500.00
Accounts Receivable 23,000.00
Sewing Supplies 21,250.00
Total Current Assets P 212,750.00

Non-Current Assets
Property, Plant and Equipment (Note 1) 249,500.00

Total Assets P 462,250.00

Liabilities and Owner’s Equity

Current Liabilities
Accounts Payable P 20,000.00

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Non-Current Liabilities
Notes Payable due 2021 80,000.00

Total Liabilities P 100,000.00

Owner’s Equity
Charlotte De Jesus, Capital 362,250.00

Total Liabilities and Owner’s Equity P 462,250.00

IV. PARTS OF THE STATEMENT OF FINANCIAL POSITION

 STATEMENT HEADING
this includes the name of the business. It indicates what kind of statement it is and
gives the date for which the report is prepared.

 ASSET, LIABILITY, PROPRIETORSHIP

items are grouped and each group is identified by special captions.

 CAPTIONS
classification of each group of items appear against the left margin of the statement

 ACCOUNT TITLES
individual account titles in each classification are indented

 CURRENT ASSETS
the individual current assets are usually listed in order of their liquidty with the most
liquid asset, cash appearing first.

 PLANT, PROPERTY AND EQUIPMENT

the plant asset are often listed in order of their expected useful life with the asset with
longest expected useful life, land appearing first.

 NOTE (#)
this is the separate computational schedule atatched to the report explaining in detail
the aggregated amount presented on the face of the financial statement.

 CURRENT LIABILITIES
The current liabilities are in theory listed in order of due date, with the debt that has
the earliest due date appearing first.

 CAPTIONS INDICATING TOTALS

Each group of items (i.e., total current assets, total plant, property and equipment, total
current libilities, among others) is indented further.

 SINGLE RULE LINE

The last figure in each group of items is underlined

 FINAL TOTALS
The two final totals (i.e.,total assets and total liabilities and owners equity) appear as
the last line in their respective sections and are underlined twice (double ruled) to
indicate a final total.

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  PESO SIGNS
Peso signs are used (a) to the left of the first amount of a group of amounts being
combined and (b) to the left of each final total.

 PESO AMOUNT
The peso amount for the detailed items is shown in one column; the total of each
classification is extended into the last column on the right-hand side of the statement.

 To illustrate the different parts of the statement of financial position:

Charlotte’s Designer and Tailoring Shop

Statement of Financial Position Statement Heading
December 31, 2019

Assets Peso Sign

Current Assets Caption Notes Note #

Cash & Cash Equivalents (5) P 133,750.00
Investment in Trading Securities 50,000.00
Peso Amount
Trade and Other Receivables (6) 51,500.00
Prepaid Expenses (7) 40,000.00
Total Current Assets P 275,250.00

Non-Current Assets
Property, Plant and Equipment (8) 441,500.00

Total Assets Caption indicating totals P 716,750.00 Final Totals

Liabilities and Owner’s Equity

Current Liabilities Caption

Trade & Other Payable (9) P 137,000.00

Non-Current Liabilities
Mortgage Payable Account titles 100,000.00 Single rule
line
Total Liabilities P 237,000.00

Owner’s Equity
Charlotte De Jesus, Capital 479,750.00

Total Liabilities and Owner’s Equity P 716,750.00

References:
Manalo, M.V (2016). Learning to Succeed in Business with Accounting Volume 2
Ballada, W. (2013). Basic Accounting Made Easy 18th Edition
Salazar, D.R (2017), Fundamentals of Accountancy, Business and Management 2 (Learners
Module)

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 Prepared:

ROSIEL J. MORENO
SHS Teacher I

Checked:

GEMMA A. TAN
OIC Assistant Principal, MT-I

Approved:

MA. HELENA V. ALUMBRES, PhD., LlB

Secondary School Principal IV

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