Unit 1: The

Statement of
Financial Position
Statement of Financial
Position
Balance Sheet
Shows the following:
 Assets
 Liabilities
 Owner’s Equity
A=L+OE
Statement of Financial
Position
Debit Credit
Assets Liabilities
 Trade and other payables
 Cash
 Accrued expenses
 Trade and other
 Loans payable
receivables  Etc
 Inventories
Equity
 Property, plant  Owner’s equity/drawing –
and equipmet Single Proprietor
(PPE)  Partner’s equity/drawing –
 etc Partnership
 Stockholder’s equity -
Corporation
See figure 1.2 page 2
SFP in Report Form
SFP in Account Form
Elements of SFP
 Real accounts – are accounts where
their balances are carried forward into
the next period, they should always
have a closing balance
 Example
 Closing 2018 – Cash, P20,000
 Opening 2019 – Cash, P20,000
Elements of SFP
ASSETS –
Debit is the normal balance
Company resources that are
expected to have future
economic benefits
Current Assets/Noncurrent
Assets
Current Assets
 Cash and cash equivalents
 First line item in the balance sheet – cash
 Currency in its physical form
 Cash on hand
 Bills,
coins or checks
 Checks – classified as cash if the date is on
or before the SPF date. Hence, a check
date after the SFP date is a posted dated
check and is classified as receivables
rather than cash.
 Cash in bank
 Earns interest
Current Assets
 Cash and cash equivalents
 CASH EQUIVALENTS
1. short-term highly liquid investments that are
readily convertible into cash
2. 90 days or 3 months
• Time deposits
• REMEMBER!!!
• Cash and cash equivalents are required to be
disclosed in the accompanying notes to
financial statement
Current Assets
 Receivables
 Refers to the company’s right to
collect payment from third parties
such as customers and employees.
 Tradereceivables – claims from
suppliers from unpaid sales or services
rendered in advance to customers
 Largest receivable of an entity
 Subject to terms like discount rate
Current Assets
 Receivables
 Notes receivables
 Evidenced by a note (promissory note)
 Usually bears interest
 Other receivables from other sources:
Advances to officers and employees
Advanced to customers
Advances to affiliated companies
Deposits for future contingencies
Dividend receivables
Interest receivables
Claims from third parties (e.g insurance)
Miscellaneous receivables from sale of other
assets
Current Assets
 Receivables
 Should be presented at its net
realizable value
 Example:
Total Accounts receivable from third parties
amounts to P150,000 it is probable that only
80% will be collected
 Contra-asset account – Allowance for
Bad Debts
Current Assets
 Inventories
 Represents cost of unsold merchandise
 Consignor-consignee
 Ownership – the consignor is the initial owner of the
goods while the consignee is simply the agent
 Payment – the consignor retains the title to the
goods until payment is received from the consignee.

 Prepaid Expenses
 Are expenses not yet incurred but paid in advance.
 Prepaid Rent
 Prepaid Insurance
 Prepaid Advertisement
Noncurrent Assets
 Property, plant, and equipment
 Old term – Fixed assets
 Should be owned and controlled by the
company
 Contra Assets – Accumulated Depreciation
 Land
 Building
 Equipment
 Land and Building Improvements
 Leasehold Improvements
Noncurrent Assets
 Intangible Assets
 These are long term assets like PPE
 These assets is that they are untouchable or
cannot be seen by the naked eyes
 Cost Allocation – amortization
 Trademarks – brand names, logos and
symbols
Elements of SFP
LIABILITIES –
 Credit is the normal balance
 These are obligations of the company
 Can use cash or exchange other
assets to settle the obligations
 Current liabilities/Noncurrent
liabilities
Current Liabilities
 Payables
Trade payables – arise from
purchased of merchandise from
suppliers
Subject to discount rate
Notes payables – evidenced by a
promissory note
 Could be current and noncurrent
Current Liabilities
 Accrued Expenses
This account represent expenses
already incurred but not yet paid
 Accrued Utilities
 Accrued Salaries
 Accrued Interest
Current Liabilities
 Unearned Income
 These
are income already received in
advance but not yet earned
Noncurrent Liabilities
 Loans Payable – originate from
borrowing from the banks or other
financial institutions
 Long term portion of Notes
Payable
 Mortgage Payable
 Bonds Payable
Elements of SFP
Equity –
 Credit is the normal balance
 It is the excess of assets over
liabilities
 Represents the capital contributed by
the owner/s
 Equity account
 Drawing account