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Statement of Financial Position.pptx

  1. Fundamentals of Accountancy, Business and Management 2 Prerequisite: Fundamentals of Accountancy, Business and Management 1
  2. Course Description: The course deals with the preparation and analysis of financial statements of a service business and merchandising business using horizontal and vertical analyses and financial ratios. Knowledge and skills in the analysis of financial statements will aid the future entrepreneurs in making sound economic decisions. Course Outline: 1. Statement of Financial Position (SFP) 2. Statement of Comprehensive Income (SCI) 3. Statement of Changes in Equity (SCE) 4. Cash Flow Statement (CFS) 5. Analysis and Interpretation of Financial Statements 6. Accounting Books –Journal and Ledger 7. Basic Documents and Transactions related to Bank Deposits 8. Bank Reconciliation Statement 9. Accounting Practice Set 10.Income and Business Taxation
  3. I. Statement of Financial Position (SFP) A. LEARNING OBJECTIVES: At the end of the topic, the students shall be able to: 1. Identify the elements of the SFP and describe each of these items for a single/sole proprietorship business 2. Prepare an SFP for a single/sole proprietorship business using the report form 3. Prepare an SFP for a single/sole proprietorship business using the account
  4. B. Present terms At the end of this topic, the students shall be able to define the following terms: 1. Statement of Financial Position/Permanent Accounts 2. Assets 3. Contra Assets 4. Accrued Income 5. Prepaid Assets 6. Liabilities 7. Contra Liability 8. Accrued Expense 9. Unearned Income 10. Equity 11. Report Form
  5. Simple Recall: Define the following terms and give examples each. a. Accounting Equation b. Assets c. Liabilities d. Equity e. Single/sole Proprietorship Business
  6. a. Accounting Equation Assets = Liabilities + Equity b. Assets are resources owned by the business. Examples: Cash, Accounts Receivable c. Liabilities are obligations by the business. Examples: Accounts Payable, Loan Payable
  7. d. Equity is the residual interest of the owner of the business. Examples: Capital, Drawings e. Single/sole Proprietorship Business is owned by one person; the simplest, and the most common form of business organization. Examples: Sari-sari store, Beauty Parlor, etc. (as long as there is one owner)
  8. What is again the normal balance of assets, liabilities, and equity? How are these accounts increased/decreased?
  9.  Assets are increased when debited while liabilities and equity are increased when credited. They are decreased when there are entries on the other side (credit for assets and debit for liabilities).
  10. ACTIVITY Prepare a Personal SFP: a. Get a ¼ sheet of paper (any paper will do if you don’t have a ¼ sheet) b. Write your current savings and everything that you own (clothes, pen, pencil, etc.) c. Write the amount that you owe your friends, family members, parents (tuition) d. Deduct the amount you owe from the amount you own e. Associate amounts owned with assets and amount owed with liabilities with the net amount as equity
  11. STATEMENT OF FINANCIAL POSITION  Also known as the balance sheet.  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)  Some describe the balance sheet as a "snapshot" of the company's financial position at a point (a moment or an instant) in time.  For example, the amounts reported on a balance sheet dated December 31, 2017 reflect that instant when all the transactions through December 31 have been recorded.
  12. 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)  Examples of permanent account include Cash, Accounts Receivable, Accounts Payable, 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.
  13. 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
  15. 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) Note: The two are only formats and will yield the same amount of total assets, liabilities and equity and that total assets should always be equal to total liabilities and equity.
  16. Elements of the Statement of Financial Position (SFP) 1. Assets - are things owned by the business. 2. Liabilities - are debts owed by the business. 3. Owner’s Equity - refers to the investment or equity of the owner.
  17. Different Parts of the Statement of Financial Position a. Heading i. Name of the Company ii. Name of the Statement iii. Date of preparation (emphasis on the wording – “as of”) b. Current Assets – Assets that can be realized (collected, sold, used up) one year after year-end date. Examples include Cash, Accounts Receivable, Accrued Income, Merchandise Inventory, Prepaid Expense, etc.
  18. Different Parts of the Statement of Financial Position c. 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. d. Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year after yearend date. Examples include Notes Payable, Accounts Payable, Accrued Expenses (example: Utilities Payable), Unearned Income, etc.
  19. Different Parts of the Statement of Financial Position e. 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. f. Owner’s Equity - often called net assets, is the owners’ claim to company assets after all the liabilities have been paid off. Examples include Owner’s Capital, Withdrawals, etc.  Current Assets are arranged based on which asset can be realized first (liquidity). Current assets and current liabilities are also called short term assets and shot term liabilities.  Noncurrent assets and noncurrent liabilities are also called long term assets and long-term liabilities.
  20. Difference of the Statement of Financial Position of a Service Company and of a Merchandising Company  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.
  21. Different Parts of the Statement of Financial Position
  22. Account Form
  23. ACTIVITY 1: Classification between Current and Noncurrent  1. Materials needed: None  2. Learners should be grouped into 4 groups. Each group will start with 100 points.  3. 1st group will be the current assets. 2nd group will be the noncurrent assets. 3rd group will be the current liabilities. 4th group will be the noncurrent liabilities.  4. Teacher will enumerate accounts (cash, accounts receivable, equipment, accounts payable, loans payable, owners’ equity).  5. For each account, the group where the account should be classified into should stand while the other groups should stay seated. For every member who was not able to stand when the group is required to or for every member who stood when the group is not required to, a point will be deducted from the group.  6. Each group should reflect on the mistakes after the activity.
  24. 1. Accounts receivable 2. Accounts payable 3. Supplies 4. Computer equipment 5. Loans payable due within one year from year-end date 6. Accumulated depreciation – computer equipment 7. Prepaid insurance 8. Interest payable 9. Notes payable 10. Cash 11. Buildings 12. Mortgage payable 13. Land 14. Salaries payable 15. Loans payable due within 3 years from year-end date
  25. Activity 2: Problem Solving Exercises Easy: 1. Learning is Fun Company had current assets amounting to Php 100,000. Noncurrent assets for the year totaled Php 76,000. How much is the company’s total assets? 2. Happy Selling Company’s total liabilities amounted Php 10,000. Total equity had an ending balance of Php 20,000. How much is total assets?
  26. Problem Solving Exercises Medium: 3. Happy Selling’s had the following accounts at year end: Cash-250,000, Accounts Payable-70,000, Prepaid Expense-15,000. Compute for the company’s current assets. 4. Happy Selling’s Accounts Receivable amounted to Php 500,000. Prepaid Expense and Unearned Income totaled Php 30,000 and Php 10,000 respectively. Cash balance amounted to Php 100,000 while Accounts Payable and Inventory totaled to Php 20,000 and Php 10,000 respectively. How much is the company’s current assets? Current liabilities?
  27. Problem Solving Exercises Difficult: 5. Company’s Total Liabilities and Equity amounted to Php 285,000. Total noncurrent assets ended at Php 85,000. Cash totaled Php50,000. Inventory amounted to Php100,000. Assuming the company had no other assets, how much is Accounts Receivable? 6. Total assets amounted to Php575,000. Total equity amounted to Php 250,000. Accounts Payable amounted to Php 50,000 while Unearned Income totaled Php 85,000. Assuming there are no other current liabilities, compute for the company’s noncurrent liabilities.
  28. Activity 3: Application Directions: Prepare a Statement of Financial Position for ABZ Company as of December 31, 2020 using the following accounts (in report form): Cash – 5,000.00 Loans Payable – 77,500.00 Accounts Receivable – 2,600.00 Supplies – 2,300.00 Equipment – 17,000.00 Owner’s equity – 40,000.00 Accounts Payable – 22,400.00 Building – 113,000.00
  29. Activity 4: Application You were hired by Mr. Juan Dela Cruz to prepare his sari-sari store’s Statement of Financial Position. In order to prepare the statement, you identified the following assets and liabilities of Mr. Dela Cruz: a. His sari-sari store has cash deposited in a bank account amounting to P50,000 b. His sari-sari store had a lot of uncollected sales from customers amounting to P75,000 c. The total amount of merchandise left inside the store is P30,000 d. He already paid one year’s rent in advance amounting to P12,000 e. The value of all the company’s furniture amounted to P100,000 f. He bought merchandise from his supplier amounting to P25,000 and the supplier agreed that payment can be made 2 months after year-end g. SSS, Philhealth and Pag-ibig Payables for his one employee totaled P5,000 h. The sari-sari store had outstanding liabilities to utility companies amounting to P3,000 i. He had a loan from the bank amounting to P50,000 to be paid in 3 years

Notas do Editor

  1. Note: Having more assets does not mean that the business is earning. It should always consider its liabilities.
  2. The use of “as of”means that the amounts in the SFP are permanent meaning that the amounts are cumulative from the beginning of the life of the business.