Scribd
Upload
20 views6 pages

Statement of Financial Position

The Statement of Financial Position outlines a company's assets, liabilities, and equity, providing a snapshot of its financial status at a specific date. Assets are classified into current and non-current categories, while liabilities are similarly categorized based on their settlement timelines. Additionally, the document discusses the Statement of Changes in Owner's Equity, detailing how capital is affected by investments, withdrawals, and net income or loss.

Uploaded by

1507ley
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
20 views6 pages

Statement of Financial Position

The Statement of Financial Position outlines a company's assets, liabilities, and equity, providing a snapshot of its financial status at a specific date. Assets are classified into current and non-current categories, while liabilities are similarly categorized based on their settlement timelines. Additionally, the document discusses the Statement of Changes in Owner's Equity, detailing how capital is affected by investments, withdrawals, and net income or loss.

Uploaded by

1507ley
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
You are on page 1/ 6

Statement of Financial Position

Statement of Financial Position


• This statement presents a company’s “position” when it comes to the resources it owns (assets), obligations
claimed against it (liabilities), and the owner’s residual interest (equity).
• The date of this statement is always “as at” or “as of” the end of the period

• The elements of financial position are as follows:


 Assets
 Liabilities
 Equity

Assets
The Conceptual Framework for Financial Reporting (CFRS) defines an asset as
“a resource controlled by the entity as a result of past events and from which future economic benefits are expected to
flow to the entity”.

Classification of Assets
Current and Non- Current Assets

Criteria for Current Assets


1. Expected to be realized, sold, or consumed in the entity’s normal operating cycle

Note: The normal operating cycle is the period it takes for an entity to buy its inventories, sell them,
and collect the related receivables.
2. Held primarily for trading
3. Expected to be realized twelve months after the reporting period
4. Asset is cash or cash equivalent unless restricted for at least twelve months after the reporting period

Example of Current Assets


• Cash or Cash Equivalent
• Trade Accounts Receivable
• Notes Receivable
• Interest Receivable
• Inventories
• Supplies and Other Prepaid Assets

Cash or Cash Equivalent


• Cash includes bills and coins on hand, bank accounts, and operating funds.
• Cash equivalents are defined as short-term, highly liquid investments that are readily convertible to known
amounts of cash and subject to an insignificant risk of changes in value.
Trade Accounts Receivable
• Amounts owed by customers to the entity. Trade accounts receivable is called “open” accounts since they do not
have documentary support other than the sales contract.

1
Notes Receivable
• Promissory note evidence this.
• The three elements of notes receivable are the:
• Principal amount (the amount collectible by the entity from the customer)
• Maturity date (it can be 30, 60, or 90 days upon the date of issue)
• Interest (e.g., 6%, 7%, etc.)
Interest Receivable
• These are related to notes receivable.
• These are amounts collectible due to the cost of borrowing money.
• Interest is computed as principal multiplied by the interest rate and the related time factor
Inventories
• The following items are included as part of inventories:
• First, goods for resell in the normal course of business or finished goods.
• Goods in the process of production as inventories. These are called goods work in progress or goods in
process
• Materials and supplies to be consumed in the production process as inventories.

Examples of Non-Current Assets


• Property, Plant, and Equipment (P.P.E)
• Intangible Assets
• Investment Properties
• Biological Assets

Property, Plant, and Equipment (P.P.E)


• These include fixed assets use in the normal operating cycle or production of the business such as land and
buildings being used by the company.
Intangible Assets
• Those assets meet the definition of an asset but without physical substance.
• Common Intangible assets include trademarks for brand names, patents for inventories, and copyrights for
artistic/literary works.
Investment Properties
• Long-lived assets not used in production.
• The company’s intention for these assets is to lease out for long-term capital appreciation.
Biological Assets
• These are living plants or animals held by the business for resale or breeding.

Liabilities
• A present obligation arising from past events the settlement of which is expected to result in an outflow from the
entity of resources embodying economic benefits (assets).
• Liabilities are classified as current if the entity has no unconditional right to defer settlement for at least twelve
months.

2
Examples of Current Liabilities
• Trade Accounts Payable
• Notes Payable
• Interest Payable
• Other Accrued Expenses
• Income Tax Payable

Trade Accounts Payable


• Open accounts relating to purchase of goods and/or raw materials.
Notes Payable
• Evidenced by a promissory note.
• If a seller receives a note receivable, the buyer then issues a note payable.
• Like in the notes receivable, notes payable would have a principal amount, maturity date, and interest rate
Interest Payable
• It is considered as cost for borrowing money. Interests are computed as principal amount, multiplied by time
factor and interest rate
Other Accrued Expenses
• These accounts pertain to expenses incurred but not yet paid. Common examples of these are salaries, rent, and
utilities.
Income Tax Payable
• Income tax is computed 30% of the corporate taxable income.
• For sole proprietors, their taxable income is subjected to the graduated tax rates.
• Income tax rates are normally paid on the 15th of April of the succeeding year. Hence, they remain unpaid
(payable) as at December 31 of the current year.

Examples of Non-Current Liabilities


• Long-term Debt
• Bonds Payable
• Mortgage Payable

Long-term Debt
• These accounts represent bank loans as a source of financing for the entity.
• Long-term debt can span from 5 years to almost 25 years. Also, most loans are serial loans. It means that
principal repayment is due every year.
• A portion of the serial loans will be current while most of it is non-current.
• Long-term debt may also include mortgage payable if certain properties are held as collateral for such loans.
Bonds Payable
• Bonds are contracts of indebtedness sold to certain individuals by corporations, governments and other entities
in order to raise capital.
• Like in the case of long-term debt, such indebtedness will bear interest.
• A bond is sometimes evidenced with a bond certificate.
Mortgage Payable
• A long-term debt of a business with security or collateral in the form of real properties.
• In case the business fails to pay the obligation, the creditor can foreclose or cause the mortgaged asset to be sold
and use the proceeds of the sale to settle the obligation.

3
Forms of SFP

Two forms of SFP


• Account Format
• Report Format
Account Format
• It consists of two columns displaying assets on the left column and liabilities and equity on the right column.

4
Report Format
• Often called as traditional format.
• It has only one column.

5
Statement of Changes in Owner’s Equity

Statement of Changes in Owner’s Equity


• Also called as “Statement of Owner’s Equity”
• It shows the changes in the Capital or Owner’s Equity as a result of additional investment or withdrawals by the
owner, plus or minus the net income or net loss for the year.
Capital
• The original and additional investment of the owner of the business increased by the amount of net income
earned during the year.
• It is decreased by the cash or other assets withdrawn by the owner as well as the net loss incurred during the
year.
Drawing
• Withdrawals made by the owner of the business either in cash or other assets
Income Summary
• A temporary account used at the end of the accounting period to close income and expense accounts.
• The balance of this account shows the net income or net loss for the period before it is closed to the capital
account.

You might also like