OBJECTIVES:

• Define the Statement of Financial

Position (SFP);
• Explain the objective of the SFP;
• Identify the elements of the SFP and
describe each of them;
• Classify the elements of the SFP into
current and noncurrent items;
• Prepare the SFP of a single
proprietorship; and
• Prepare an SFP using the report form
and the account form with proper
classification of items as current and
noncurrent.
STATEMENT OF FINANCIAL
POSITION (SFP)

 A statement that gives the financial

condition of a business as of a given date. It
is another name of balance sheet.
 It provides the owner with an understanding
of the financial position of the business.
 THREE ELEMENTS OF SFP
- refers to the the
things, properties or rights owned
by the business.
Examples:
Tools Building Equipments Land Cash
An asset is under the control and
custodianship of the entity as a result
of a past transaction such as a
purchase, an exchange, or a donation.
The asset will generate income for the
entity.
a.) Assets are controlled by the
enterprise.
b.) Assets are result from past events.
c.) Assets give future economic benefits.
d.) Assets can be used by themselves
alone to yield income.
• are the debts owed by the business to persons
other than the owner and will decrease the
assets of the entity.

• a debt of the entity resulting from a previous

transaction such as a loan, a purchase from a
supplier, or an agreement to assume the debt
of another party.
a.) Cash Payment
b.) Distribution of other assets
c.) Rendering of Services
d.) Substitution with another liability
e.) Conversion of the liability into ownership
interest of the lender in the borrower’s entity
 – REFERS TO THE INVESTMENT OR
EQUITY OF THE OWNER IN THE BUSINESS.

Initially, a proprietor invests capital in the form

of funds, merchandise, equipment, or any other
property to operate his or her business.

His or her primary purpose is to maximize the

use of his/her capital by gaining profits.
• The capital will grow when the
business earns profit, but will decrease
when the business incurs a loss.

• Equity in a single proprietorship is

termed as capital account.
is useful to the various users of
financial statements such as the
management, stockholders,
regulators, creditors, and customers.
• Solvency – pertains to the proportion of total
long-term debts to total assets, gives an idea to
lenders of long-term loans, whether the
company can settle the interest and principal of
the loan on the agreed settlement date.

• Financial Structure – refers to the level of

borrowings from external parties such as banks
and other financial institutions and the equity
interest of the owner in the enterprise.
 – these are assets which
are not restricted to use, readily convertible to
cash, or to be sold or consumed within the
normal operating cycle of the business, or one
year.
– are those assets that do
not qualify as current.
EXAMPLE:

Current Assets Noncurrent Assets

Cash Land
Trading Account Securities Building
Receivables (account, notes) Equipment
Merchandise Inventory Furniture and Fixtures
Prepaid Expenses Leasehold Rights
 – are debts or obligations
normally expected to be settled in the normal
course of the company’s operating cycle or
within one year by using current assets or
creating other current liabilities.

– are long-term debts

which will be settled beyond one year.
EXAMPLE:
Current Liabilities Noncurrent Liabities

Accounts Payable Notes Payable

Loans Payable Mortgage Payable

Utilities Payable Bond Payable

Interest Payable
 CONCEPT OF NORMAL OPERATING CYCLE
FOR A MERCHANDISING BUSINESS

To understand the concept, we can consider the operations of a

grocery store, a merchandising business.
The proprietor buys merchandise from his supplier and
commits to pay after 30 days. The proprietor’s customers buy the
merchandise and agree to settle the amount due from them
within an average period of 45 days. The amounts due from the
customers are collected within the agreed period. The operating
cycle starts from the date the merchandise is bought until the
customer pay for them in full.
IN THIS EXAMPLE, THE NORMAL OPERATING CYCLE IS 75 DAYS. SINCE ONE YEAR IS
LONGER THAN 75 DAYS, WHICH IS THE MERCHANDISING BUSINESS’S NORMAL
OPERATING CYCLE, THE BASIS OF CURRENT ASSET OR CURRENT LIABILITY
CLASSIFICATION IS ONE YEAR.
Cash

Collection Purchasing
Activity Activity

Accounts Products/
Receivable Services

Revenue
Activity
 – this refers to currencies, checks, money orders, bank
deposits, and other money equivalents.

– these include stocks of

companies listed in the stock exchange and are readily
convertible into cash.

– this includes claims of the business from

customers and third parties that are evidenced by formal
instruments of credit such as promissory notes.
 – this pertains to claims of the
business from customers for sales of products or
rendering of services.

– this is a contra account

against accounts receivable. The net amount is called
net realizable value.

– these include various office or shop

supplies that are necessary in the operation of the
business.
 - this refers to office equipment
such as computer set, printer, air conditioner, and
delivery equipment (vehicles).

– these pertains to tables,

chairs, cabinets, counters, and other, types of furniture
used in the business.

– this is a deduction (except

for land) from property, plant, and equipment.
 – this refers to the debt of the
business due to purchase of products or services that
are to be paid on a future date.

- this covers loans obtained by the

business from financial institutions or private
individuals and entities supported by promissory notes.

– these refer to amounts due to

providers of water, electricity, telephone, and other
basic services.
 – this pertain to debt
secured from a financial institution by
mortgage or lien on real estate of the
business or its proprietor.

– this covers the

withdrawal of cash or any form of asset from
the business.
• A.) The SFP must have a heading comprising the name of
the business, title of the report, and date covered by the
report.

• B.) Its left margin is usually subdivided into two: extreme

margin for the major subheadings (e.g., current assets;
plant, property and equipment; other noncurrent assets;
current liabilities; noncurrent liabilities; and owner’s
equity) and inner margin for specific account titles.
• C.) At the right margin, the extreme money
column is also for major subheadings while
the inner margin is for specific accounts.

• D.) A double rule is placed under “total

assets” and “total liabilities and owner’s
equity.” As expressed in the accounting
equation, assets must equal to liabilities
and owner’s equity.
Follows the style of the
accounting equation (i.e.,
assets are on the left side of
the SFP while liabilities and
owner’s equity are on the
right side.
 EXAMPLE:
Xerxes Copiers
Statement of Financial Position
31 December 2018

Assets Liabilities and Owner’s Equity

Current Assets: Current Liabilities:
Cash P14700.00 Accounts Payable P8200.00
Accounts Receivable 3200.00 Utilities Payable 300.00
Supplies 1200.00 Total Current Liabilities P 8500.00

Noncurrent Liabilities:
Notes Payable 50000.00

Total Current Assets P19100.00 Total Liabilities P58500.00

Property and Equipment: Owner’s Equity:
Copying Machines 58200.00 Xerxes, Capital 15600.00
Accumulated Depreciation (3200.00)

Net Property, Plant, and Equipment 55000.00

Total Assets P74100.00 Total Liabilities and Owner’s Equity P74100.00
•The accounts are presented
in one straight column--
assets first, followed by
liabilities, and finally, the
owner’s equity
 Xerxes Copiers
Statement of Financial Position
31 December 2018

Assets
Current Assets:
Cash P14700.00
Accounts Receivable 3200.00
E Supplies 1200.00
X Total Current Assets P19100.00
A Property and Equipment:
M Copying Machines P58200.00
P Less Accumulated Depreciation (3200.00) 55000.00
L Total Assets 74100.00
E
Liabilities and Owner’s Equity

Current Liabilities:
Accounts Payable P8200.00
Utilities Payable 300.00
Total Current Liabilities 8500.00
Noncurrent Liabilities:
Notes Payable 50500.00
Total Liabilities 58500.00

Owner’s Equity:
Xerxes, Capital 15600.00

Total Liabilities and Owner’s Equity P74100.00

TAKE NOTE!
According to the Philippine Accounting Standards (PAS)
that there is no prescribed form for financial reporting as
long as the form is appropriate to the nature of business
and transactions of the entity.