Chapter 1: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION
ELEMENTS OF THE ACCOUNTING EQUATION
ASSETS= LIABILITIES+ CAPITAL
The elements of balance sheets
ASSETS
Current Assets
 Cash and cash equivalents
 Receivable
 Merchandise inventory
 Prepaid expenses
Non-current Assets
 Long term investments
 Land
 Building
 Equipment
 Furniture and fixtures
 Goodwill, patent, copyright, trademarks
LIABILITIES
Current liabilities
 Accounts payable
 Unearned income
 Output vat payable
 SSS payable
 Pag-IBIG payable
 Philhealt Payables
 Salaries and Wages Payable
 Taxes Payable
 Accrued Expense Payable
Non-current liabilities
 Notes payable
 Loans payable
OWNER’S CAPITAL OR EQUITY
Current and Non-current (Assets and Liabilities)
Current Assets – Assets that can be realized (collected, sold, used up) one year after year-end date.
Examples include Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expense, etc.
Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year after yearenddate.ExamplesincludeNotesPayable,AccountsPayable,AccruedExpenses(example:Utilities Payable),
Unearned Income,etc.
CurrentAssetsarearrangedbasedonwhichassetcanberealizedfirst(liquidity).Currentassets
liabilities are also called short term assets and shot termliabilities.
and
current
Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one year after yearend date. Examples include Property, Plant and Equipment (equipment, furniture, building, land), Long
Term investments, Intangible Assets etc.
Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within one year
after year-end date. Examples include Loans Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called long term assets and long term liabilities.
Statement of Financial Position – Also known as the balance sheet. This statement includes
the amounts of the company’s total assets, liabilities, and owner’s equity which in totality
provides the condition of the company on a specific date. (Haddock, Price, & Farina, 2012)
Permanent Accounts – As the name suggests, these accounts are permanent in a sense that
their balances remain intact from one accounting period to another. (Haddock, Price, & Farina,
2012)ExamplesofpermanentaccountincludeCash,AccountsReceivable,AccountsPayable,Loans
Payable and Capital among others. Basically, assets, liabilities and equity accounts are
permanent accounts. 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 – Contra assets are 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 is a contra asset to
Accounts Receivable. This represents the estimated amount that the company may not be able
to collect from delinquent customers. Accumulated Depreciation is a contra asset to the
company’s Property, Plant and Equipment. This account represents the total amount of
depreciation booked against the fixed assets of the company.
Differences between Report Form and Account Form:
Report Form – A form of the SFP that shows asset accounts first and then liabilities and owner’s
equity accounts after. (Haddock, Price, & Farina, 2012)The balance sheet shown earlier is in report
form.
Account Form – A form of the SFP that shows assets on the left side and liabilities and owner’s
equity on the right side just like the debit and credit balances of an account. (Haddock, Price, &
Farina, 2012)
Difference of the Statement of Financial Position of a Service Company and
of a MerchandisingCompany
The main difference of the Statements of the two types of business lies on the inventory account. A
service company has supplies inventory classified under the current assets of the company. While a
merchandising company also has supplies inventory classified under the current assets of the company, the
business has another inventory account under its current assets which is the Merchandise Inventory, Ending.
Parts of the Statement of FinancialPosition
EXAMPLE 1:
1. MR. CRUZ INVESTED CASH TO THE BUSINESS FOR P75 000
2. THE OWNER PURCHASED SUPPLIES IN CASH P3000
3. THE OWNER PURCHASED ADDITION SUPPLIES ON CREDIT FOR P5 000
EFFECTS OF THE ABOVE EXAMPLE
TRANSACTION
No.
1
2
3
A
Assets
75 000
3000
(3000)
5 000
COLUMN TOTAL
EQUATION TOTAL
80 000
80 000
=
B
Liabilities
+
5000
5000
75000
80 000
TO THE BALANCE SHEET
ABC Company
Balance Sheet
As of December 31, 2017
Cash
Supplies
ASSETS
72, 000
8,000
LIABILITIES & CAPITAL
Accounts Payable
5, 000
Mr.Cruz Capital
Total assets
80, 000
C
Capital
75 000
75, 000
Total liabilities&capital
80, 0000
Example 2
The trial balance of San Diego Enterprise was prepared for the period covering January 1 to June 30, 2021. As an
accountant you are required to prepare Statement of Financial Position as of June 30, 2021 in an ACCOUNT FORMAT
SAN DIEGO ENTERPRISES
Trial Balance
June 30, 2021
Cash
Accounts Receivable
Supplies
Prepaid Rent
Delivery Vehicle
Office equipment
Furniture
Accumulated depreciation
Accounts payable
VAT payable
Notes payable
San Diego Capital
San Diego Drawing
Net Income
TOTAL
Ca
Ca
Ca
Ca
nca
nca
nca
cl
cl
ncl
oe
oe
Debit
Credit
150 000.00
25 000.00
10 000.00
60 000.00
75 000.00
15 000.00
10 500.00
15 000.00
15 500.00
5 000.00
45 000.00
250 000.00
20 000.00
365 500.00
35 000.00
365 500.00
SOLUTION TO EXAMPLE 2
ACCOUNT FORM
SAN DIEGO ENTERPRISES
Statement of Financial Position
As of June 30, 2021
ASSETS
Current Assets:
Cash
Account receivable
Supplies
Prepaid rent
Total Current Assets:
150 000
25 000
10 000
60 000
245 000
Non-current Assets
Delivery vehicle
75 000
Office equipment
15 000
Furniture
10 500
Total non-current Assets: 100 500
Less: Accumulated
15 000
depreciation
Net Book Value
85 500
Total Assets :
330 500
LIABILITIES
Current Liabilities
Accounts payable
15 500
VAT payable
5000
Total Current liabilities 20 500
Non-current liabilities
Notes payable
45 000
Total Liabilities
65 500
San Diego Capital
CAPITAL
265 000
Total Liabilitie& Capital 330 500
REPORT FORM
ASSETS
Current Assets:
Cash
Account receivable
Supplies
Prepaid rent
Total Current Assets:
150 000
25 000
10 000
60 000
245 000
Non-current Assets
Delivery vehicle
75 000
Office equipment
15 000
Furniture
10 500
Total non-current Assets: 100 500
Less: Accumulated
15 000
depreciation
Net Book Value
85 500
Total Assets :
330 500
LIABILITIES
Current Liabilities
Accounts payable
15 500
VAT payable
5000
Total Current liabilities 20 500
Non-current liabilities
Notes payable
45 000
Total Liabilities
65 500
San Diego Capital
CAPITAL
265 000
Chapter test 1-1
Choose the letter of the correct answer
1. The other name for the Statement of Financial Position is:
a. working balance sheet
b. financial position sheet
c. balance sheet
d. none of the above
2. The statement of Financial Position period in its heading is expressed as:
a. for the period covered and followed by a date
b. as of and followed by a date
c. a date only
d. all of the above
3. Which of the following is not an element of the balance sheet?
a. assets
b. liabilities
c. capital
d. owner's drawings
4. Which of the following is an asset account?
a. unearned revenues
b .prepaid expenses
c. drawings
d. none of the above
5. Which of the following is a contra account?
a. accumulated depreciation
b. accounts payable
c. uncollectible accounts expenses
d. accrued expenses
6. All of the following are components of a capital except for:
a. additional investment of the owner
b. owner's drawing
c. net income or loss
d. gain on sale of assets
7. One of this is a form of a balance sheet
a. vertical form
b. report form
c. horizontal form
d. none of the above
8. Example of non-current liabilities is:
a. notes payable
b. loans payable
c. mortgage payable
d .all of the above
9. Which of the following names is NOT associated with the statement of comprehensive income?
a. foreign currency translation adjustments
b. actuarial gains and losses arising on defined benefit pension plan
c. revaluations of property, plant and equipment
d. none of the above
10. This represent things of value with no physical form:
a. Tangible asset
b. un-seen asset
c. intangible asset
d. none of the above
Chapter Test 1-2
Write TRUE of the statement is correct or FALSE if otherwise
1. The statement of Financial Position is like a frozen pictures taken at certain periods of time
2. One of the three elements of balance sheet is drawing account
3. Current assets are tangible or intangible assets that have a life span of more than one year
4. Tangible assets are things that represent things of value with no physical form
5. A net profit results when expenses exceed over the income
6. The owners drawing is an addition to the capital account
7. Capital or equity are contributions of the owner to the business which be in form of cash only
8. Assets can be used to settle obligations
9. Noncurrent Liabilities are liabilities that do not fall due (paid, recognized as revenue) within one year
after year-end date.
10. Current Liabilities are liabilities that fall due (paid, recognized as revenue) within one year after yearend date.
Chapter Test 1-3
Instruction: indicate if the following are : Current assets ( CA), non-current assets (NCA), current
liabilities ( CL) , non-current liabilitie ( NCL)
1. Cash
2. Accounts payable
3. Notes payable
4. Prepaid expenses
5. Accrued expenses
6. Accounts receivable
7. Land
8. Furniture and fixtures
9. Supplies inventories
10. Wages payable
Chapter Test 1-4 ( Performance Task 1)
The following is the trial balance of Gregorio Enterprise as of June 30, 2022
GREGORIO ENTERPRISE
Trial Balance
June 30, 2022
Cash
Accounts Receivable
Supplies
Prepaid Rent
Delivery Vehicle
Office Equipment
Furniture
Accumulated Depreciation
Accounts Payable
Vat Payable
Notes Payable
Gregorio Capital
Prepare Balance Sheet in Account Form
120 000
50 000
12 000
35 500
165 000
23 200
11 450
30 000
26 550
4 500
75 000
281 100
Chapter Test 1-5 ( Performance Task 2)
Using the following info, prepare a properly classified Statement of Financial Position for Graduation Company as at
December 31, 20xx
a) Account Form
b) Report Form
Accruals and other current liabilities
125,890
Bonds payable
5,000,000
Cash and cash equivalents
2,500,000
Current income tax payable
589,660
Intangible assets, net
2,654,700
Investment in associate
1,890,600
Investment in equity securities
3,650,400
Investment property
1,968,740
Long-term notes payable
2,000,000
Merchandise inventory
2,789,000
Office and store supplies
400,000
Other noncurrent assets
600,000
Other noncurrent liabilities
750,000
Owner's Equity
18,211,250
Prepayments and other current assets
385,000
Property, plant, and equipment, net
9,856,250
Short-term notes payable
320,000
Trade and other payables
1,562,890
Trade and other receivables
1,865,000