STATEMENT OF FINANCIAL POSITION

What is accounting?

- It is the process of identifying, measuring, recording and communicating economic

information about an organization in order to permit judgments by the users of the
information.
- It is the language of business as it tries to deliver the message or story. It follows several
processes and steps in order to deliver the message to interested users.

The complete set of financial statements:

1) Statement of Financial Position ( or Balance Sheet)

2) Statement of Comprehensive Income ( or Income Statement)
3) Statement of Changes in Equity
4) Statement of Cash Flow
5) Notes, comprising a summary of significant accounting policies and other explanatory
information

TITLE CONTENTS DATE

Statement of Financial Assets, Liabilities and Equity For a point in time
Position ( As at or As Of)
Statement of Comprehensive Revenues and Expenses For a period in time
Income (For the period ended)
Statement of Changes in Transactions involving For a period in time
Equity Owners (For the period ended)

Statement of Cash Flow Transactions involving Cash For a period in time

(For the period ended)
Explanatory Notes Other information N/A

What is Statement of Financial Position?

- FS are organized depiction of events that happened in a business.

- FS are chapters of a novel, telling different stories of an interrelated subject.
- FS can be compared to a static picture or portrait.
- FS literally presents a company’s “position” when it comes to the resources it owns
(assets), obligations claimed against (liabilities) and the owner’s residual interest
(equity).

Accounting Process:

1) Analysis of source documents.

2) Journalizing – journalize the economic transactions and events
3) Posting – post the journal entries in # 1 to the general ledgers.
4) Trial Balance – prepare the trial balance from the general ledgers.
5) Adjusting – adjust the ledger balances
6) Financial Statements – make income statement and balance sheet from the adjusted
trial balance
 7) Closing – close or transfer the income and expense accounts to income and expense
summary account and the latter account to owner’s drawing, and the owner’s drawing to
owner’s equity.
8) Post closing trial balance – make a trial balance of all assets, liabilities and owner’s
equity.

Elements of Financial Statements:

a Asset It is a resource controlled by the enterprise as a result of past events and from
. which future economic benefits are expected to the enterprise.
b Liability It is a present obligation of the enterprise arising from past events. The
. settlement of which is expected to result in an outflow of resources from the
enterprise embodying economic benefits.
c. Equity It is the residual interest or remainder of the asset of the enterprise after
deducting all its liabilities.
d Income These are increases in economic benefits during the accounting period in the
. form of inflows or enhancements of assets or decreases of liabilities that result
in increases in equity.
e Expenses These are decreases in economic benefits during the accounting period in the
. form of outflows or depletions of assets or increases in liabilities that result in
decreases in equity.

TYPICAL ACCOUNT TITLES USED

BALANCE SHEET / STATEMENT OF FINANCIAL POSITION

CLASSIFICATION OF ASSETS

CURRENT ASSETS – an asset is classified as current when:

a) Expected to be realized, sold or consumed in the entity’s normal operating cycle.
b) Held primarily for trading
c) Expected to be realized 12 months after the reporting period
d) Asset is cash or cash equivalents unless restricted for at least 12 months after the end
of the reporting period.

EXAMPLES OF CURRENT ASSETS

Cash Includes bill and coins on hand, bank accounts and operating funds. Examples:
petty cash fund, cash deposited in banks under the name of the company.
Cash Short-term, highly liquid investments that is readily convertible to known amount
Equivalents cash and which are subject to an insignificant risk of changes in value.
Instruments acquired 90 days before their maturity are classified as CE
Accounts Are amounts owed by customers to the entity. The entity records a trade
Receivable accounts receivable while waiting for the collection of cash on due date. AR are
called “open” accounts since they do not have documentary support other than
sales contract.
Notes Are evidenced by a promissory note. The key elements of NR are the principal
Receivable amount (amount collectible/ borrowed), maturity dates ( 30 days, 60 days or 90
 days) and interest (rate).
Interest Are related to the notes receivable. These are amounts collectible due to the
Receivable cost of borrowing money. It is computed as principal multiplied by interest rate
and multiplied by the related time factor.
Financial Conventionally called trading securities. It is either debt or equity instruments of
Assets At another entity held by the reporting entity.
Fair Value
Through
Profit Or
Loss
Inventories Includes 3 items as part of inventories.
Raw Materials – include materials and supplies to be consumed in the
production process (example: a beverage company producing bottled orange
juice will include fresh oranges as their raw material)
Work in process – includes goods in the process of production (example: if a
furniture manufacturing company has half-finished furniture)
Finished Goods – include goods for resell in the normal course of business.
(example: a real estate company selling land will classify their land as inventory)
Supplies Includes office supplies to be consumed by the business.
And Other Prepaid expenses paid for by the business in advance such as prepaid rent,
Prepaid prepaid insurance, prepaid advertising
Assets

EXAMPLES OF NON-CURRENT ASSETS

PROPERTY, These include fixed assets used in the normal operating cycle or production
PLANT And of the business. This includes land and building being used by the company.
EQUIPMENT Manufacturing equipments, vehicles, furniture and fixtures and leasehold
improvements.
PPE are depreciated over their estimated useful life except for land since
such is deemed with perpetual benefit.
PPE are presented in the statement of financial position after deducting their
related accumulated depreciation.
Intangible Are those assets meeting the definition of an asset but without physical
Assets substance. Example: trademarks for brand name, patents for inventions and
copyrights for artistics/literary works.
Investment Are long –lived assets not used in production, the company’s intention for
Properties these assets is to lease out or for long-term capital appreciation.Example: if
a company purchases a land and erects a building to be leased out to
renters, such is an investment property. This is due to the fact that such are
for rental income and not for company use.
Biological Are living plants or animals held by the business for resale or for breeding.
Assets
CLASSIFICATION OF LIABILITIES

CURRENT LIABILITIES – a liability is classified as current when:

a) It expects to settle the liability in its normal operating cycle
b) It holds the liability primarily for the purpose of trading
c) The liability is due to be settled within 12 month after the end of the reporting period
d) The entity does not have an unconditional right to defer settlement of the liability for at
least 12 months.

EXAMPLES OF CURRENT LIABILITIES

Accounts Payable Are open accounts relating to purchase of goods and or raw materials.
If the seller has account receivables for uncollected accounts, the buyer
will have accounts payable for unpaid amounts.
Notes Payable Are evidenced by a promissory note.
If a seller receives a note receivable, the buyer then issues a note
payable.
Notes payable would also have a principal amount, maturity date and
interest rate.
Interest Payable Are related to notes payable. Interest is considered as cost or
borrowing money.
Other Accrued This pertains to expenses incurred but not yet paid. Common examples
Expenses are salaries, rent and utilities.
Income Tax Payable Income tax is computed at 30% of the corporate taxable income

EXAMPLES OF NON- CURRENT LIABILITIES

Long-term Debt These accounts represent bank loans as a source of financing for the
entity. It can be a span of 5 years to almost 25 years.
Most loans are serial loans which mean that the principal amount
should be paid every year.
Based on the definition, a portion of the serial loans will be current while
most of it is non-current.
Example: On January 1, 2015, ABC company borrows from the bank
amounting to P 15, 000,000 payable in 15 years with 10% interest. On
December 31, 2015, the P15,000,000 will be split into the current
portion of P 1,000,000 and non-current portion of P 14,000,000. This is
due to the fact that the first installment of loan is due less than one year
from the reporting year. The interest payable is generally classified a
current.
Bonds Payable Bonds are contracts of indebtedness sold to certain individuals. It is
sometimes evidenced with bond certificates.
THE STATEMENT OF FINANCIAL POSITION

There are two forms of SFP or Balance Sheet, the REPORT FORM (vertical form) and the
ACCOUNT FORM (horizontal form)

STEPS in preparing the REPORT FORM of SFP:

A.) Prepare the Statement Heading

SANTOS ACCOUNTING FIRM

STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2015

B.) Prepare the Asset Section

ASSETS
Current Assets
Cash and Cash Equivalents
Accounts Receivable
Notes Receivable
Inventories
Supplies and Other Prepaid Assets
Non - Current Assets
Property Plant and Equipment
TOTAL ASSETS

C.) Prepare the Liabilities Section

LIABILITIES
Current Liabilities
Accounts Payable
Current portion of notes payable
Unearned Revenue
Interest Payable
Non - Current Liabilities
Non-current portion of Notes payable
TOTAL LIABILITIES

D.) Prepare the Owner’s Equity Section

OWNER’S EQUITY
Santos Capital

E.) Ensure that the Accounting Equation is Balance.

Completed Statement of Financial Position with Supporting Notes

TRIAL BALANCE OF DOMINIC TRADING

STATEMENT OF FINANCIAL POSITION WITH SUPPORTING NOTES

Cash in Banco de Plata 880, 000
Cash in Metro Pacific Bank 220, 000
Petty Cash fund 5, 500
Change Cash Fund 2, 750
Cash equivalents 11, 000
Accounts receivable 220, 000
Notes Receivable 22, 000
Raw Materials 66, 000
Work in Progress 44, 000
Finished Goods 110, 000
Land Used as Plant Site 110, 000
Building and Plant 220, 000
Accumulated Dep’n – Building and Plant ( 22, 000)
Fixtures 110, 000
Accumulated Dep’n – Fixtures ( 11, 000)
Patents 110, 000
Accumulated Dep’n – Patents ( 11, 000)
Trademarks 110,000
Accumulated Dep’n – Trademarks ( 11, 000)
Land Held for fair value appreciation 1, 100, 000
Accounts Payable 220, 000
Notes payable 110, 000
Interest Payable 11, 000
Income Tax Payable 99, 000
Long term debt 550, 000
Capital 2, 296, 250

Note: assumed that long term debt is payable in 10 years, the principal amount is due every
year.

Supporting Notes

Note 1 Composition of cash and cash equivalents

Cash in Banco de Plata 880, 000
Cash in Metro Pacific Bank 220, 000
Petty Cash fund 5, 500
Change Cash Fund 2, 750
Cash equivalents 11, 000
Total cash and cash equivalents 1, 119, 250
Note 2 Composition of Inventories
Raw Materials 66, 000
Work in Progress 44, 000
Finished Goods 110, 000
Total Inventories 220, 000

Note 3 Composition of PPE

LAND BLDG and PLANT FIXTURES TOTAL
Cost 110,000 220, 000 110, 000 440, 000
Accumulated Depn 0 (22, 000) (11, 000) (33, 000)
Carrying Value 110, 000 198, 000 99, 000 407, 000

Note 4 Composition of Intangible Assets

PATENTS TRADEMARKS TOTAL
Cost 110,000 110,000 220, 000
Accumulated Depn ( 11,000) ( 11,000) (22, 000)
Carrying Value 99, 000 99, 000 198, 000

Note 5 Long Term Debt Schedule

Long Term Debt
Current Portion ( 550,000 / 10 years) 55, 000
Non-current portion ( 550, 000 – 55, 000) 495, 000
TOTAL 550, 000
 DOMINIC TRADING
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2015

ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (note 1) 1, 119, 250
Notes Receivable 22, 000
Accounts Receivable 220, 000
Inventories (note 2) 220, 000
TOTAL CURRENT ASSETS 1, 581, 250
NON CURRENT ASSETS
Property Plant and Equipment (note 3) 407, 000
Investment property 1, 100, 000
Intangible Assets (note 4) 198, 000
TOTAL NON CURRENT ASSETS 3,286,250
LIABILITIES and EQUITY
CURRENT LIABILITIES
Accounts Payable 220, 000
Notes Payable 110, 000
Current portion of long term debt (note 5) 55, 000
Income Tax Payable 99, 000
Interest Payable 11, 000
TOTAL CURRENT LIABILITIES 495, 000
NON CURRENT LIABILITIES
Long Term Debt (note 5) 495, 000
OWNER’S EQUITY
Dominic Capital 2, 296, 250
TOTAL LIABILITIES AND EQUITY 3. 286, 250