Scribd
Upload
34 views23 pages

Fabm2 Q3-M1

The document outlines the Statement of Financial Position, also known as the balance sheet, which includes a company's total assets, liabilities, and owner's equity on a specific date. It details the classifications of assets (current and non-current), liabilities (current and non-current), and shareholders' equity, along with the importance of balancing the accounting equation: Assets = Liabilities + Shareholder Equity. Additionally, it explains the differences in financial statements between service and merchandising companies, as well as the formats for presenting the statement.

Uploaded by

Dialee Flor Dael Baladjay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
34 views23 pages

Fabm2 Q3-M1

The document outlines the Statement of Financial Position, also known as the balance sheet, which includes a company's total assets, liabilities, and owner's equity on a specific date. It details the classifications of assets (current and non-current), liabilities (current and non-current), and shareholders' equity, along with the importance of balancing the accounting equation: Assets = Liabilities + Shareholder Equity. Additionally, it explains the differences in financial statements between service and merchandising companies, as well as the formats for presenting the statement.

Uploaded by

Dialee Flor Dael Baladjay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 23

FA B M 2

T H E S TAT E M E N T O F F I N A N C I A L P O S I T I O N
(ELEMENTS, FORMS AND ITS
C L A S S I F I C AT I O N S )

QUARTER 3-MODULE 1
Fi n a n c i a l information is contained and
communicated through the fi n a n c i a l statements.
Fi n a n c i a l statements tell what has and is
happening in the business.

A complete set of financial statements are composed of the following:

1. Statement of Financial Position(Balance Sheet)


2. Statement of Comprehensive Income(Income Statement)
3. Statement of changes in Equity
4. Statement of cash Flow
1 . S TAT E M E N T O F F I N A N C I A L P O S I T I O N
– 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.
- The items reported on the balance sheet correspond to the accounts outlined
on your chart of accounts.
- A statement of financial position/balance sheet is made up of the following
elements:
- 1. Assets - Current Asset and Non current Assets
- 2. Liability - Current Liabilities and Non current Liabilities
- 3. Owner’s Equity - Income and Expenses
1. A SSETS
- breaks down what your business owns of value that can be converted into cash.
- assets are listed according to its liquidity. Current Assets are arranged based on which asset
can be realized first (liquidity).
- There are two main categories of assets included on your balance sheet:

1. Current Assets
2. Non-current Assets
Current Assets - can easily be converted to cash within a year or less. Current assets are further
broken down on the balance sheet into these accounts:
Cash and cash equivalents: These are your most liquid assets, including currency, checks and
money stored in your business’s checking and savings accounts. Marketable securities:
Investments that you can sell within a year. Accounts receivable: Money that your clients owe
you for your services that will be paid in the short term. Inventory: For businesses that sell
goods, inventory includes finished products and raw materials. Prepaid expenses: Things of
value that you’ve already paid for, like your office rent or your business insurance.
Current Assets - can easily be converted to cash within a year or less. Current assets are
further broken down on the balance sheet into these accounts:

Cash and cash equivalents - These are your most liquid assets, including currency,
checks and money stored in your business’s checking and
savings accounts.
Petty Cash Fund - Funds used for small payments or small expenses.
Marketable securities- Investments that you can sell within a year.
Accounts receivable - Money that your clients owe you for your services that will
be paid in the short term.
Inventory - For businesses that sell goods, inventory includes finished
products and raw materials.
Prepaid expenses - Things of value that you’ve already paid for, like your
office rent or your business insurance.
Non-Current Assets - Long-term assets won’t be converted to cash
within a year. They can be further broken down
into:

Fixed assets - Includes property, buildings, machinery


and equipment like computers.

Long-term securities - Investments that can’t be sold within one year.

Intangible assets - Assets that aren’t physical objects, such as


copyrights, franchise agreements and patents.
2. LIABILITIES
- The next section of a balance sheet lists a company’s liabilities.
- Your liabilities are the money that you owe to others, including your recurring
expenses, loan repayments and other forms of debt. Liabilities are further broken
down into current and long-term liabilities.
Current Liabilities - Liabilities that fall due (paid, recognized as revenue)
within one year after year-end date, include rent, utilities, taxes,
current payments toward long-term debts, interest
payments and payroll.
Non-Current Liabilities- Liabilities that do not fall due (paid, recognized as
revenue) within one year after year-end date. include long-
term loans, deferred income taxes and pension fund
liabilities.

Non-current assets and non-current liabilities are also called long-term assets
3. SHAREHOLDERS EQUITY
- Shareholders equity refers to the amount of money generated by a
business.
- the amount of money put into the business by its owners (or
shareholders) and any donated capital.
- Shareholders equity is your net assets.
- On your balance sheet it’s calculated using this formula:

Stakeholders Equity = Total Assets – Total Liabilities


PERMANENT ACCOUNTS
- PERMANENT ACCOUNTS– As the name suggests, these accounts are
permanent in a sense that their balances remain intact from one
accounting period to another.
- 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
- These accounts are presented under the assets portion of the SFP but are reductions to
the company’s assets.
- These include Allowance for Doubtful Accounts. 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. It should be deducted
and directly below Accounts Receivable:
Accounts Receivable ________

Allowance for doubtful accounts (________)

- 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. It should be deducted and directly below the fixed asset:
Company Vehicle _________
Accum.Depreciation-Company Vehicle (__________)
BALANCING A STAT E ME N T OF FINANCIAL POSITION

- A Statement of Financial Position is divided into two sections, with one side
representing your business’s assets and the other showing its liabilities and shareholders
equity.
- This idea is represented by the foundational formula of balance sheets:

Assets = Liabilities + Shareholder Equity


(the accounting equation)
Why is a Statement of Financial Position Important?
1. Liquidity - how much cash you have that is readily available.
2. Efficiency - you can measure how efficiently your business uses its assets.
3. Leverage - tell you how much financial risk you face.
D I F F E R E N C E O F T H E S TAT E M E N T O F F I N A N C I A L
POSITION OF A SERVICE C O M PA N Y & OF A
M E R C H A N D I S I N G C O M PA N Y

The main difference lies on the inventory account.


Service company - has SUPPLIES INVENTORY under the current assets.

Merchandising company - has SUPPLIES INVENTORY under the current assets and has
another inventory account under its current assets
which is the MERCHANDISE INVENTORY, ENDING.
REPORT FORM AND ACCOUNT FORM
- Statement of Financial Position can be presented in either Report form or Account
form, both formats will give the same balances.
Report form - is form of the SFP that shows asset accounts first and then
liabilities and owner’s equity accounts after.
Asset accounts
Liabilities accounts
Owner’s Equity accounts
Account form - 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.
Asset accounts Liabilities accounts
Owner’s Equity accounts
REPORT
FORM
ACCOUNT FORM
DIFFERENT
PA R T S O F T H E
S TAT E M E N T
OF FINANCIAL
POSITION
H O W T O P R E PA R E T H E S TAT E M E N T O F F I N A N C I A L P O S I T I O N
1. Prepare the statement heading. This includes the name of the company, name of the
statement and the period covered.

2. Prepare the Asset Section From the given trial balance, you the bookkeeper or
accountant will determine the asset and contra asset accounts. After which, the assets are
categorized as current or non-current. Finally, the current assets are arranged by liquidity
meaning the ease of converting assets into cash.
3. Prepare the Liabilities Section. You will then categorize liabilities as current and non-current.
Finally, the current and non-current liabilities are arranged by liquidity which means the ease of
converting/paying such liabilities into cash.

4. Prepare the Owner’s Equity Section. This balances in this section is from the ending balances
of the Statement of changes in Equity.

5. Ensure that the Accounting Equation is balanced. Finally, as bookkeeper you will ensure that
the total assets will equate to total liabilities and equities. The statement is footed and tested
for mathematical accuracy.
ANSWER THE
FOLLOWING ACTIVITIES
IN YOUR JOURNAL
NOTEBOOK.
R E A D E A C H I T E M C A R E F U L LY A N D U S E Y O U R N O T E B O O K T O
W R I T E Y O U R A N S W E R S . C L A S S I F Y T H E F O L L O W I N G A C C O U N T S
W H E T H E R T H E Y A R E A S S E T, L I A B I L I T Y, O R E Q U I T Y A C C O U N T S .
F O R A S S E T A N D L I A B I L I T Y A C C O U N T S , C L A S S I F Y W H E T H E R
T H E Y A R E C U R R E N T O R N O N C U R R E N T.

You might also like