FINANCIAL

STATEMEN
TS
 WHAT IS FINANCIAL
STATEMENTS?
• -are structured financial
representation of the financial policies
of the transactions undertaken by an
enterprise and show the results of
managements’ stewardship of the
resources invested to it.
THE OBJECTIVE OF FINANCIAL
STATEMENTS IS:
• -is to provide information about
the financial position, performance
and cash flows of an enterprise
that is vital in making sound
economic decisions.
BASICALLY FINANCIAL STATEMENTS
CONSIST OF THE FOLLOWING:

• 1. Statement of Financial Position

or Balance Sheet
• 2. Statement of Comprehensive
Income or Income Statement
• 3. Statement of Changes in Owner’s
Equity
• 4. Statement of Cash Flows
• 5. Accounting Policies and Notes to
Financial Statements.
STATEMENT OF
FINANCIAL
POSITION
 LEARNING OBJECTIVES:

• 1. Identify the elements of the SFP

and describe each of them;
• 2. Classify the element of the SFP
into current and non-current items;
• 3. Prepares SFP of a single
proprietorship
• 4. Prepares SFP using the Report Form
and Account Form with proper
classification of items as current and
non-current.
 THINK, RELATE AND
CONNECT
• Direction: Make your own Statement of financial
Position.
• 1. On a sheet of paper write your current savings and
everything that you own (cellphone, clothes, jewelries,
bags, etc.) Make sure to estimate the amount of what
you have listed.
• 2. Deduct the amount you owe from the amount you
own.
 GUIDE QUESTIONS:
• 1. How will you associate the amounts you
owned, amounts you owed and the net amount
(amount owned less amount owed) with the
elements of the SFP or the accounting equation.
• Assets = Liabilities + Equity
• 2. Do you think having more assets means that
the business is earning.?
 WHAT IS STATEMENT OF
FINANCIAL POSITION (SFP)?
• - is a statement that shows the “Financial Condition of
the business as of a particular date”
• - is a report based on the accounting equation
ASSET = LIABILITIES + EQUITY
• - it is previously referred to as Balance Sheet and
considered as “permanent or real” accounts.
 SUBSTITUTING EQUATION WITH
THE BALANCE SHEET DATA.
• EXAMPLE:
• Assets = Liabilities +
Owner’s Equity
• 1,000,000 = 750,000 +
250,000
 THREE (3) ELEMENTS OF
STATEMENTS OF FINANCIAL POSITION

•
I. ASSETS
• - are resources with future benefits that are within the control of the
company.
• In layman’s language:
• - it is defined as things of value that are owned and used by the business
in its operation like Cash, Accounts Receivable, Inventory, Building,
Equipment, Land etc.

•
•
 PRESENTATION:

• Per Philippine Accounting Standard

No. 1, Assets are classified into two
(2), namely:
• a. Current Assets
• b. Non-current Assets
 TWO CLASSIFICATION OF AN
ASSET
• 1. CURRENT ASSETS
• - are all assets of a company that are expected to
be realized, sold or consumed used within the normal
operating cycle of the business.
 COMPONENTS OF CURRENT
ASSETS
• A. CASH
- refers only to funds readily available to be spent for the
company’s operations.
- An account title to describe money, either in paper or in coins and
money substitutes (check, postal money order, bank drafts etc.)

•
a.1 Cash on Hand – are cash kept in
the company’s premises
• a.2 – Cash in Bank – refers to
money in bank which can be kept in
a savings or checking account.
• Also included in the determination of
cash on hand are change fund (Pang-
sukli) and petty cash fund.
• Petty Cash Fund – is a fund that is set
aside to pay small or petty expense.
 THIS HAPPENS WHEN THE
COMPANY USES __.
• “Imprest System” of handling cash
– wherein all cash including
collection are deposited to the
bank intact and withdrawal may be
in a form of check.
 EXAMPLE:

• If the established petty cash fund is P1,000.

it is accounted for as follows:
• Established petty cash fund 1,000
• Less: Traveling Expense 150
• Supplies Expense 60
• Petty cash fund balance
P790
 Note:

• * Petty cash balance or unused

portion of the petty cash fund is
counted and included in the Cash
on Hand account.
• * Money substitutes like checks for
deposit may not be considered cash
especially when the check is post-dated
or if the check is dated after the
Statement of financial Position and may
be reclassified as receivable.
• Cash Equivalent – are not considered as
cash.
• Example: Time deposit
• * Cash equivalent are not considered
as cash. Although it is liquid
instrument, it will become cash in
the next 90 days. Time Deposits are
best example of cash equivalent.
 COMPONENTS OF CURRENT
ASSETS
B. ACCOUNTS RECEIVABLES
– amounts collectible arising from rendering of
services to consumers or clients or sale of goods to
customers on account.
 COMPONENTS OF CURRENT
ASSETS
• C. ESTIMATED UNCOLLECTIBLE ACCOUNTS
OR ALLOWANCE FOR DOUBTFUL ACCOUNTS.
• - is an “asset-offset” or a “contra-asset” account.
• - deduction from the accounts receivable
• D. NOTES RECEIVABLES
• – is a promissory note that is received by the
business from the customer arising from rendering of
services, sale of merchandise, etc. This can be either be
an interest bearing or non-interest bearing.
• E. ACCRUED INCOME
- the amount of income earned but not
yet collected.
• E. ADVANCES TO EMPLOYEES
- the account title for amounts
collectible from employees for allowing them
to make cash advances which are deductible
against their salaries or wages.
 COMPONENTS OF CURRENT
ASSETS
• E. INVENTORIES
• - refer to goods available for sales in a merchandising
business or raw materials to be consumed in production
in the case of manufacturing concern.
 Note:

• * Consigned goods are not reported as

inventory even if they are held in store
premises. Only merchandise held for sale are
reported as inventory.
• * Items that are used in the day to day
activities of the company are supplies and not
inventory.
• * Unsold merchandise that is
determined through physical
counting is valued at cost and not
at selling price.
 EXAMPLE:

• The bicycle is sold at 5,000/unit.

Assuming that the cost of the
bicycle is 4,000, the reported
inventory is at cost of 4,000.
 SAMPLE PROBLEM
• Before Juana opened the store on January 1, 2022, she
asked you to help her count the merchandise inside the
store. The result of the count are given below:
• Merchandise Cost

• 2 bags of candy 30 per bag

• 10 sachet of coffee 6 per sachet
• 10 sachet of laundry powder 15 per sachet
• 1 sack of rice 1,800 per sack
• 10 cans of sardines 15 per can
• 10 chocolate bars 20 per bar
• 5 notebooks 25 per notebook
• Note:
• 1. The chocolate bars were on consignment from Tsokolate-Eh
• 2. Of the notebooks inside the store, one is used for listings of customer credit.
• Required: Report Juana Dela Cruz the balance of the merchandise inventory
account of friendly Convenience store.
 COMPONENTS OF CURRENT
ASSETS

• F. PREPAID EXPENSES
• - refer to future expenses that the company had paid for
in advance or have not yet expired such as Prepaid
Rental, Prepaid Insurance, Prepaid Interest, Prepaid
Advertising Expense etc.
 SAMPLE PROBLEM

• Juana paid premium of 6,000 for 1 year fire insurance in

the name of the store on October 1, 2021. How much
should prepaid insurance be on Dec. 31, 2021.

• Note: the amount paid is what we call “Prepaid Insurance”

 Ex: Computation of prepaid insurance (asset) turning
to insurance expense (expense) as follows:

• Prepaid Expense 6,000

• / Premium coverage 12 months
• Insurance Expense
500/month

• At the end of Dec. 31, 2021, P1,500(500x3) is the amount of insurance expense that will be reported
in the Statement of Comprehensive Income. The amount of P4,500 (500x9) is the balance of Prepaid
Insurance account that will be reported in Statement of Financial Position.
•
• G. UNUSED SUPPLIES
- an account title for cost of stationary
and other supplies purchased for use but are left
on hand and still unused. The account title
should be specified as to Unused Office
Supplies if intended for the office, Unused
Shop Supplies if intended for the shop, etc.
• NOTE: These accounts are normally
arranged according to liquidity (ready
conversion to cash) in the Balance Sheet.
 TWO CLASSIFICATION OF AN
ASSET
• 2. NON-CURRENT ASSETS
• - are assets that can be realized (collected, sold,
used up) more than one (1) year.
• - long-term assets
•
 COMPONENTS OF
NONCURRENT ASSETS
• A. PROPERTY, PLANT AND EQUIPMENT
• - are long-term assets that are used in the operations of
the business/company.
- are tangible assets which are held by an enterprise
for use in production or supply of goods and services, for
rental to others, or for administrative purposes, and which
are expected to be used more than 1 year.
• Example: Land, Building, warehouses, automobiles,
delivery vehicle, computer equipment and manufacturing
equipment.
• Note: Only those assets owned and controlled by the
company will be reported as PPE.
• LAND – an account title for the site where
the building used as office or store is
constructed.
• A.2 BUILDING – account title for finished
construction owned by the business where
operations and transactions took place.
• EQUIPMENT
- includes calculators, typewriters, adding
machines, computers, steel filing cabinets and
the like. If these are used in the office, the
account title is Office Equipment and it used
in the store, Store Equipment.
• Trucks, jeeps, vans, automobiles and other
kinds of motor vehicles are exclusively for
delivering goods, the account title is
Delivery Equipments.
• FURNITURE AND FIXTURES
- includes chairs, tables, counters,
display cases and the like. If these are used in
the office, the account title is Office Furniture
& Fixtures and if used in store, the account
title is Store Furniture & Fixtures.
• Depreciation – is the rational and
systematic allocation procedure
wherein the expiration of cost of
the property, plant and equipment
are spread according to its lives.
• ACCUMULATED
DEPRECIATION
- Is the contra-asset account of
asset which is deductible from the
Property, Plant and Equipment.
 EXAMPLE:
• On January 1, 2020, Juana Purchased an electronic cash register
to be used in the Friendly convenience store. The cash register
was purchased at a cost of 15,000. Juana depreciates the cash
register over 5 years. Determine the following:
• 1. Equipment
• 2. Annual Depreciation
• 3. Accumulated depreciation as of December 31, 2021
• 4. Net book value of Equipment as of December 31, 2021
 ANSWER/SOLUTION:
• Cost of electronic cash register 15,000
• Estimated useful life 5 years
• Annual depreciation (15,000/5yrs) 3,000
• No. of years depreciated (2020-2021) 2 years
• Accumulated depreciation (3,000x2) 6,000
• Net Book value (15,000-6,000) P9,000
B. INTANGIBLE ASSETS
– these are identifiable non-monetary assets without physical existence.
Examples: patents, copyright, franchise, trademarks, etc.

Patent
- is a grant conferred by the government to the creator of an invention,
whether a product or a process for the sole right to make, use and sell that
invention for a specified period of time.
• Brand name
• - refers to word or words used to identify a specific
product and its manufacturer.
• Trade mark
• - is the symbol that represent the brand
• Assets that are classified as Property, Plant &
Equipment are called depreciable assets and
are expected to depreciate except land.
• Land is not subject to depreciation
because it is expected to be useful to the
business enterprise for an indefinite
period of time.
 THREE (3) ELEMENTS OF
STATEMENTS OF FINANCIAL POSITION

• II- LIABILITIES
• - are financial obligations of the business to its
creditors
• - it represents the claim of the creditors over the
• assets of the business.
 TWO CLASSIFICATION
LIABILITIES

• A. CURRENT LIABILITIES
• - are financial obligations of the business which are
expected to be settled in the normal course of the
operating cycle and due to be settled within one (1)
year.
 COMPONENTS OF CURRENT
LIABILITIES:
• A.1 ACCOUNTS PAYABLES
• - An account title for a financial obligation of the
enterprise that constitutes an oral or verbal promise to
pay.
•
• A.2 NOTES PAYABLES (Short-term)
- Requires the issuance of a promissory note.
This time, business owner is the one who
prepares the note which is payable in less
than a year.
• - most suppliers give credit terms of 30 to 90 days.
• - some suppliers give discounts for early payments.
 SAMPLE PROBLEM

• On November 15, 2022, Juana Dela Cruz purchased

five sacks of rice at P1,800 per sack. The credit term is
2/10, n/30. Determine how much Juana should pay
given the following payment dates.
• 1. November 24, 2022
• 2. December 15, 2022
 SOLUTION
• Cost of 1 sack rice 1,800
• No. of sack purchased 5
• Tot. cost purchased 9,000
• Discount in % 2%
• Discount in peso 180
• Discounted cost to be paid 8, 820
• A.3. ACCRUED EXPENSES
• - is an account title for expenses incurred but are not yet paid.
• - refers to the unpaid expenses of the company as of the cut-
off date of the Statement of Financial Position.
• Example: Salaries Payable, Rent Payable and Interest payable,
utilities payable, taxes and licenses, etc.
• A.4. UNEARNED INCOME (Pre-Collected)
• - this is the account title for cash collected or
received in advance but services have not been
rendered or goods have not yet been delivered yet.
 EXAMPLE:

• A computer technician was demanding P5,000 for

repair of a computer. He was asking from you, a down
payment of P3,000 cash and a balance payable upon
completion of the repair.
 TWO CLASSIFICATION
LIABILITIES
• B. NON-CURRENT LIABILITIES
• - are long-term liabilities. These are financial
obligations that can be settle in more than one (1) year
from the statement of financial position date.
 COMPONENTS OF NON-
CURRENT LIABILITIES:
• B.1 NOTES PAYABLE (long-term)
• - these are financial obligation that will be settled
for more than a year.
• Ex. Bank Loan, usually the bank requires post-dated
checks (PDC) upon release of the loan or even requires
a collateral.
 COMPONENTS OF NON-
CURRENT LIABILITIES:
• B.2 MORTGAGE PAYABLE
• - a financial obligation of the enterprise which
requires fixed or tangible property to be pledged as a
collateral to ensure payments.
 THREE (3) ELEMENTS OF
STATEMENTS OF FINANCIAL POSITION

• C. OWNER’S EQUITY
• - is the net assets of the business.
• - is the amount of money and value of property put
by the owner into the business to start with the
operation which is referred to as “Initial investment” or
“Initial Capital”
• WITHDRAWAL – the owner’s withdrawal is
likewise indicated by the use of the owner’s
name with the word Drawing after the name.
- when a business owner drawn money from
his/her capital to use for their personal use.
• INCOME AND EXPENSE SUMMARY
- this is a temporary account created at
the end of the accounting period where
income and expense are temporarily closed
to this account.
ACTIVITY
 Title Lorem Ipsum
LOREM IPSUM DOLOR SIT AMET, NUNC VIVERRA IMPERDIET ENIM.
CONSECTETUER ADIPISCING ELIT. FUSCE EST. VIVAMUS A TELLUS.

PELLENTESQUE HABITANT MORBI

TRISTIQUE SENECTUS ET NETUS.