MODULE 1: STATEMENT OF FINANCIAL POSITION

This module was designed and written with you in mind. It is here to help you
master the Statement of Financial Position (SFP). The scope of this module permits
it to be used in many different learning situations. The language used recognizes
the diverse vocabulary level of students. The lessons are arranged to follow the
standard sequence of the course. But the order in which you read them can
be changed to correspond with the textbook you are now using.

The module is composed of one lesson, namely:

• Lesson 1 – Identify the element of the Statement of Financial Position (SFP)
and describe each of them.

After going through this module, you are expected to:

1. identify the elements of the SFP and describe each of them;
2. prepare an SFP using the report form and the account form with proper
classification of items as current and noncurrent; and
3. appreciate the importance of the SFP in a business organization.

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The activity below will help you check how much you know about the key
elements of the Statement of Financial Position (SFP).

Activity 1. “WHAT I KNOW”

Directions: Choose the letter of the best answer and write your answer on a
separate sheet of paper.

1. It pertains to resources which are controlled and owned by the business.

a. Assets c. Equity
b. Liabilities d. Resources

2. It is derived from deducting the total liabilities to the total assets of a company.
a. Assets c. Equity
b. Liabilities d. Resources

3. Which of the following pertains to the obligations that the business owed to other
entities arising from past events which are to be settled in the future?
a. Assets c. Equity
b. Liabilities d. Resources

4. Which of the following is the correct Accounting Equation?

a. Assets + Liabilities = Equity c. Assets = Liabilities + Equity
b. Assets = Liabilities - Equity d. Assets + Equity = Liabilities

5. Which of the following is classified as Current Asset?

a. Prepaid Expenses c. Delivery Vehicle
b. Land d. Copyright

6. Which of the following financial statements presents the financial position of an

entity at a given or specific date?
a. Income Statement c. Statement of Changes in Equity
b. Statement of Financial Position d. Statement of Cash Flows

7. All of the following are classified as Assets, EXCEPT:

a. Accounts Receivable c. Building
b. Inventory d. Accounts Payable

8. Which of the following is classified as a non-current liability?

a. Accounts Payable c. Utilities Payable
b. Mortgage Payable d. Unearned Revenue

9. Which of the following is classified as a current asset?

a. Prepaid Rent c. Investments
b. Unearned Rent d. Drawings

10. In which part of Statement of Financial Position does the Salaries Payable be
listed?

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 a. Assets c. Owner’s Equity
b. Liabilities d. Expenses

11. The following are elements of Statement of Financial Position EXCEPT:

a. Assets c. Equity
b. Liabilities d. Expenses

12. It is a form of the Statement of Financial Position that is presented in a

horizontal format.
a. Report form c. Digital form
b. Account form d. Line form

13. It is a form of the Statement of Financial Position that is presented in a vertical

format.
a. Report form c. Digital form
b. Account form d. Line form

14. An item is considered current when__________________________________________?

a. It is expected to be used or converted into cash or to be paid for more
than one year.
b. It cannot be converted or realizable into cash within a year.
c. It is expected to be used or realizable into cash or to be paid within a year.
d. It has an expected life for more than 12 months

15. A non-current item is _________________________________.

a. expected to be used/realizable into cash or to be paid for more than
one year.
b. Expected to be converted or realizable into cash within a year.
c. expected to be used or paid within a year.
d. item bought for readily consumption/ production.

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 Lesson Identify the elements of the
Statement of Financial Position (SFP)
1 and describe each of them

The Statement of Financial Position (SFP), which is also known as the Balance
Sheet, shows the financial position of a business entity at a given period or a
specified date. Its purpose is to help the financial statement users in the
assessment of the financial health and soundness of a business entity in
determining its liquidity, financial, credit and business risks.

It has three (3) elements: 1. Assets (resources owned and controlled by the
business); 2. Liabilities (obligations owed to someone by the business); and 3.
Equity or Owner’s Equity (residual interest of the owners of the business or what
was left of the assets after paying the liabilities is the right of the owners).

The assets, aside from the capital investment of the owners, maybe financed
from outside sources (like loans from banks and other financial institutions or
from other creditors). The total assets should always be equal to the sum of the
total liabilities and total equity. Thus, the Accounting Equation is stated as:
Assets = Liabilities + Equity.

As what you have learned from your Fundamentals of the Accountancy, Business
and Management 1 about the types of major accounts (Assets, Liabilities, Equity,
Income and Expenses), let us focus on the three major accounts which are also
the elements of the SFP or the Balance Sheet. These are the Assets, Liabilities
and Equity.

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The activity below will also help you check how much you know about the key
elements of the Statement of Financial Position (SFP).

Activity 2: “GUESS THE ACCOUNT TITLES”

Directions:
1. Guess the account title being described in each sentence.
2. Identify what element of SFP (Assets, Liabilities or Equity) it is listed/ included.
3. Write your answers on the columns provided.

Description Account title SFP Element

1. I am used as a medium of
exchange in business
transactions. I may be held on
hand or put in banks for
safekeeping.

2. I can be in the form of cash or

other assets invested by the
owner to start- up a business.

3. I am items held for resale.

4. I am expenses paid in
advance.

5. I am expenses incurred but

not yet paid.

6. I am amounts due to suppliers

for the purchase of goods or
services received on account.

7. I am an amount taken by the

owner from the business for
personal use.

8. I am an account due with

supporting promissory notes.

9. I am an account due from

customers as a result of sale
of goods or for services
rendered.

10. I have a long- life and acquired

for use in business operations.

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In Activity 1, you were able to identify and describe some of the account titles
and the elements to which it belongs in relation to the Statement of Financial
Position (SFP). In this part of the module, you will learn further the preparation
of SFP using the report form and the account form with proper classification of
items as current and noncurrent.

The Statement of Financial Position (SFP): its classification, its preparation, and its
form.

As mentioned earlier, the Statement of Financial Position (SFP) or the Balance

Sheet shows the financial position of a business entity at a given period or a
specific date. Following the accounting cycle the SFP and other
financial statements (which will be discussed in the succeeding modules) are
prepared once the adjusted trial balance is done to come- up with a fair
balance sheet statement. Assets, Liabilities and Equity are properly grouped
and classified to give a meaningful information. Assets are presented and
classified by the order of its liquidity or those that are readily available for use
and can easily be converted into cash are listed first and assets that cannot be
easily converted into cash are listed last. When it comes to liabilities, maturity
matters. Those obligations that are currently due are listed first. The Balance
Sheet includes permanent and contra asset accounts. An account is said to
be permanent because their balances are carried over from one accounting
date to another. The Assets, Liabilities and Equity accounts are permanent
accounts. Contra asset accounts are accounts also presented in the SFP as a
deduction to a particular asset. These are Allowance for Doubtful Accounts and
Accumulated Depreciation. The Allowance for Doubtful Accounts, a contra
asset for Accounts Receivable, it is an allowance made by the business for
estimated uncollectible accounts. An Accumulated Depreciation is an account
that represents depreciation of Fixed Assets (except for Land) due to its usual
wear and tear.

Classification of Assets, Liabilities and Equity

1. Assets are divided into current or non-current.
• Current Assets - are items that are listed on a business’ statement of
financial
position that are expected to be used or realized into cash within one
accounting period or a year. It usually includes cash, accounts
receivable, inventories and prepaid expenses. Cash is considered the
most liquid asset because it is readily available for use. It is used as a
medium of exchange in business transactions and may be held on hand or
put in banks for safekeeping. Accounts Receivables are accounts due
from customers as a result of sale of goods or for services rendered that
are collectible within one year. Inventories are regarded as a current
asset because these are items held for resale because they are readily
available (either raw materials or finished goods). Prepaid expenses are
considered current assets because they are expenses paid in advance to
be consumed within a year.

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 • Non-Current Assets - are items that are listed on a business’ statement
of financial position that cannot be used or realized into cash within one
accounting period or a year. It includes assets that are long- term in nature
like fixed assets, long-term investments and intangibles. Fixed assets
includes Property, Plant and Equipment (Furniture, equipment, land,
building, vehicles, etc.) that are used acquired for use in operations and
have an estimated useful life of more than one year. Long- term
investments are investments made by the owners of the business for
long- term purposes like marketable securities. Intangible assets are non-
physical assets like Patents, Copyright and Franchise.

2. Liabilities are also divided into current or non-current.

• Current Liabilities - are liabilities that should be paid and realized within a
year after the year-end date. These include Accounts Payable, Notes
Payable, Accrued Expenses and Unearned Income. Accounts Payable is
amount due to suppliers for the purchase of goods or services received on
account to be paid within a year. Notes Payable is account due with
supporting promissory notes with short-term mode of payments. Accrued
Expenses are expenses incurred but not yet paid, examples are Salaries
Payable, Taxes Payable, etc. Unearned Income is cash collected or
given in advance from customers for future delivery of goods or services to
be performed.

• Non- Current Liabilities - are liabilities that are to be paid for more than a
year from the year-end date. These include Loans Payable, Mortgage
Payable, etc. Loans Payable is account due from third parties which was
agreed to be paid for longer terms. Mortgage Payable is account due from
third parties with associated collaterals to be paid for longer terms.

3. Equity
Equity or Owner’s Equity is the residual interest of the owners of the business or
what was left of the assets after paying the liabilities is the right of the owners. It
includes the Capital and Drawing accounts. Capital is the investment made by the
owner to start-up a business in the form of cash or other assets. Drawing or
withdrawal is an amount taken by the owner from the business for personal use.

Steps in preparing a simple Statement of Financial Position (SFP):

1. You should start with a heading. The heading includes the name of the
business or entity (ex. JD Gardens), name of the financial statement (ex.
Statement of Financial Position) and the reporting date/ period (ex. As of
December 31, 2019). We use as of in SFP because the amounts (in Philippine
Peso) of the items are cumulative from the start of the operations of the
business up to the accounting date.
2. Assets are presented first. These are classified into current and non- current
assets.
3. Next is to present the Liabilities. These should also be classified into current
and non- current liabilities.

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 4. Equity/ Owner’s Equity is then added after the liabilities to complete the
accounting equation (Assets= Liabilities + Equity).

Jacques’ Garden
Statement of Financial Position
As of December 31, 2019

ASSETS
Current Assets
Cash PhP 250,000.00
Accounts Receivable 85,000.00
Garden Supplies and Materials 185,000.00
Prepaid Expenses 48,000.00
Total Current Assets Php 568,000.00

Non- Current Assets

Garden Tools and Equipment PhP 285,000.00
Accumulated Depreciation ( 95,000.00) PhP 190,000.00
Delivery Vehicle 500,000.00
Accumulated Depreciation ( 62,500.00) 437,500.00
Land 1,500,000.00
Building 550,000.00
Accumulated Depreciation ( 55,000.00) 495,000.00
Total Non- Current Assets PhP 2,622,500.00

TOTAL ASSETS PhP 3,190,500.00

================
LIABILITIES
Current Liabilities
Accounts Payable PhP 355,000.00
Notes Payable, 1 year 150,000.00
Salaries Payable 35,500.00
Total Current Liabilities PhP 540,500.00

Non-Current Liabilities
Notes Payable, 7 years 350,000.00

TOTAL LIABILITIES PhP 890,500.00

OWNER’S EQUITY
Owner’s Equity
Jacques, Capital PhP 2,300,000.00

TOTAL LIABILITIES AND OWNER’S EQUITY PhP 3,190,500.00

================

The illustration is an example of a simple statement of financial position of a

single/ sole proprietorship. Other forms of business organizations (partnership and
corporation) have different presentation depending on the nature of its business.
The total assets must be always equal to the total liabilities and owner’s equity.

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The total assets, as well as, the total liabilities and equity are double ruled showing
that it is the end part of a financial statement.

Forms of Statement of Financial Position (SFP)

The Statement of Financial Position (SFP) has two forms, the Report form and the
Account Form. The format in the preparation of the SFP depends on the
preference but most financial users prefer to use the report form because it is
easier to read especially when comparing multiple years SFP.
• Report Form - it is a form of SFP wherein accounts are presented vertically,
the Assets first, followed by the Liabilities and then the Equity. The above
presented Balance Sheet is an example of a Report Form SFP.
• Account Form - it is a form of SFP wherein accounts are presented
horizontally, the Assets are presented on the left side while the Liabilities and
the Equity are on the right side of the Balance Sheet. It will look like the debit
and credit balances of an account.

Jacques’s Garden
Statement of Financial Position
As of December 31,2019

ASSETS LIABILITIES AND OWNER’S EQUITY

Current Assets Current Liabilities
Cash ₱250,000.00 Accounts Payable ₱355,000.00
Accounts Receivable 85,000.00 Notes Payable, 1 year 150,000.00
Garden Supplies and Materials 185,000.00 Salaries payable 35,500.00
Prepaid Expenses 48,000.00 Total Current Liabilities ₱540,500.00
Total Current Assets ₱568,000.00
Non-Current Liabilities
Non- Current Assets Notes Payable, 7 years ₱350,000.00
Total Non-Current
Garden Tools and Equipment ₱285,000.00 Liabilities ₱350,000.00
Accumulated Depreciation (95,000.00) ₱190,000.00
Delivery Vehicle 500,000.00 Total Liabilities ₱890,500.00
Accumulated Depreciation (62,500.00) 437,500.00
Land 1,500,000.00 Owner's Equity
Building 550,000.00 Jacques, Capital ₱2,300,000.00
Accumulated Depreciation (55,000.00) 495,000.00 Total Owner's Equity ₱2,300,000.00
Total Non- Current Assets ₱2,622,500.00
TOTAL LIABILITIES &
TOTAL ASSETS ₱3,190,500.00 OWNER'S EQUITY ₱3,190,500.00

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Activity 3: “LET’S CLASSIFY”
Directions: Determine the classification of the following accounts as to ASSET,
LIABILITY AND EQUITY. For Asset and Liability accounts, determine also how it is
treated as to CURRENT OR NON- CURRENT.

No. ACCOUNT TITLE ACCOUNT CLASSIFICATION

1. Cash
2. Furniture and Fixtures
3. Land
4. Notes Payable
5. Notes Receivable
6. DSD, Capital
7. Accounts Receivable
8. Vehicle
9. Building
10. Taxes Payable
11. Mortgage Payable
12. DSD, Drawings
13. Prepaid Rent
14. Utilities Payable
15. Marketable Securities

Activity 4: “PREPARING A STATEMENT OF FINANCIAL POSITION 1/2”

Directions: Prepare a properly classified Statement of Financial Position using the
report form.

Mr. Archer owned a plant shop named Archer’s Gardens. He hired you to
prepare his plants shop’s Statement of Financial Position for the year 2019. The
following shows the assets and liabilities of Jacques:
a. His plant shop has cash in bank account amounting to P150,000.
b. His plant shop has uncollected sales from customers amounting to P125,000.
c. The total amount of garden supplies and materials after inventory showed
P80,000 on hand.
d. He already paid one year’s advertisement in advance in a local newspaper
amounting to P12,000
e. Total value of all the shop’s garden tools and equipment amounted to P150,000
f. He bought garden supplies and materials on account from his supplier
amounting to P155,000 to be paid within three months after the year- end.
g. Salaries unpaid to his three employees totaled P21,000.00.
h. Utilities amounting to P6,000.00 remained unpaid as of year- end.
i. His outstanding loan balance amounted to P45,000 will be paid within 5 years.

Activity 4: “PREPARING A STATEMENT OF FINANCIAL POSITION 2/2”

Directions: Using the same data in Activity 3, prepare a properly
classified Statement of Financial Position using the account form.

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