Statement of Financial Position
Fundamental of Accountancy, Business, and
Management 2
ABM12
Statement of Financial Position (Balance
Sheet)
An accounting report that summarizes the financial status
of a business at a particular point in time.
Three main sections of a statement of financial position:
Assets
Liabilities
Owner’s equity
The accounting equation is the basis of the statement of
financial position.
Assets = Liabilities + Owner’s equity
T-form statement of financial position
Narrative form statement of financial position
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
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.
Assets
Asset is defined as “resource controlled by the entity
as a result of past event and which future economic
benefits are expected to flow to the entity”
Essential characteristic of asset:
The asset is controlled by the entity
The asset is the result of a past transaction or event
The asset provides future economic benefits
The cost of the asset can be measured raliably
Liabilities
Liability is defined as “ present obligation of an entity
arising from past events, the settlement of which is
expected to result in an outflow from the entity of
resources embodying economic benefits”.
Essential characteristic of Liabilities:
The liability is the present obligation of a particular
entity
The liability arises from past transaction or event.
The settlement of the liability requires an outflow of
resources embodying economic benefits.
Equity
Equity is the residual interest in the assets of the entity
after deducting all of its liabilities.
Simply stated, equity means “ net assets” or total
assets minus liabilities.
The terms used in reporting the equity of an entity
depending on the form of the business organization
are:
Owner’s Equity in a Proprietorship
Partner’s Equity in a Partnership
Stockholder’s Equity in a Corporation
T-form statement of financial position
City Traders Co.
Statement of financial position
As of June 30, 2005
Assets Liabilities
Cash at bank 3 000 Creditors 5 000
Debtors 5 000 Loan 10 000
Stock 20 000 15 000
Office equipment 4 000
Vehicle 18 000 Owner’s equity
Capital – K. Wilson 35
Total assets $50 000 000
_______ Total equities & $50 000
liabilities _______
Narrative form statement of financial position
City Traders Co.
Statement of financial position
As of June 30, 2005
Assets
Cash at bank 3,000
Debtors 5,000
Stock 20,000
Office equipment 4,000
Vehicles 18,000
Total assets $50,000
Liabilities
Creditors 5,000
Loan (due 30/6/07) 10,000 15,000
Owner’s equity Capital – K. Wilson 35,000
Total equities $50,000
Classification in the Statement of
Financial Position
A classified statement of financial position separate
both assets and liabilities into those that are current
and those that are non-current.
The assets are usually classified according to their
liquidity, which is how quickly they are expected to be
turned into cash or used up.
Liabilities are classified on the basis of the urgency of
repayment.
Assets
Current assets: Assets that are expected to be realised
in cash or used up within the next 12 months. Current
assets include cash on hand, cash at bank, short-term
investments, inventory, debtors.
Line items under current assets:
Cash or Cash Equivalent
Financial assets at fair value such as trading securities
and other investments in a quoted equity instruments
Trade and other receivables
Inventories
Prepaid Expense
Non-current assets: Assets that are acquired with the
intention of controlling them for a period of time
greater than 12 months. Non-current assets include
property, equipment, machinery, furniture, vehicles,
long-term investments
Line items under non-current assets
Property, plant and equipment
Long-term investments
Intangible assets
Other non-current assets
Liabilities
Current liabilities: obligations that will be satisfied
within the next 12 months. Current liabilities include
bank overdrafts, short-term loans, creditors.
Line items under current liabilities:
Trade and other payables
Current provisions
Short term borrowing
Current portion of long term debt
Current tax liability
Non-current liabilities: obligations that are deferred
over a period greater than 12 months. Non-current
liabilities: include long-term loans.
Line items under non-current liability
Non-current portion of a long term debt
Finance lease liability
Deferred tax liability
Long term obligations to company officers
Long term deferred revenue
Equity
Philippine Term IAS Term
Capital stock Share capital
Subscribed capital stock Subscribe share capital
Common stock Preference share capital
Additional paid capital Ordinary share capital
Retained earning (deficit) Share premium
Retained earning appropriated Accumulated profits
Revaluation surplus (Losses)
Appropriation reserve
Treasury stock
Treasury share
T-form statement of financial position
City Traders Co.
Statement of financial position
As of June 30, 2005
Current assets Current liabilities
Cash at bank 3 000 Creditors 5 000
Debtors 5 000 Loan 5 000 10 000
Stock 20 000 28 000 Current liabilities
Non-current assets Loan (due 30/6/07) 5 000
Office equipment 4 000 Owner’s equity
Vehicle 18 000 Capital – K. Wilson 35
22 000 000
Total assets $50 Total equities & $50 000
000 liabilities _______
_______
Narrative form statement of financial position
City Traders Co.
Statement of financial position
As of June 30, 2005
Current assets
Cash at bank 3,000
Debtors 5,000
Stock 20,000 20,000
Non-current assets
Office equipment 4,000
Vehicles 18,000 22,000
Total assets $50,000
Current liabilities
Creditors 5,000
Loan 5,000 10,000
Non-current liabilities
Loan (due 30/6/07) 5,000
Owner’s equity Capital – K. Wilson 35,000
Total equities $50,000
