Fundamentals of Accountancy, Business & Management 2
Learning Competency!
The learners should be able to:
1. Identify the elements of the SFP
and describe each of them.
2. Classify the elements of the SFP
into current and noncurrent items.
Fundamentals of Accountancy, Business & Management 2
3. Prepare an SFP using the report
form and the account form with
proper classification of items as
current and noncurrent.
4. Reflect on the importance of
preparing the SFP.
Fundamentals of Accountancy, Business & Management 2
Financial statements
= are structured representation of an entity’s
financial position which is balance sheet and
results of its operations which is the
statement of performance. Financial
statements are product of the accounting
process.
Fundamentals of Accountancy, Business & Management 2
Fundamentals of Accountancy, Business & Management 2
Statement of Financial Position
(Balance Sheet)
= This statement includes the amounts of the
company’s total assets, liabilities, & owner’s
Equity which in totality provides the
condition of the company on the specific
date.
Example:
Fundamentals of Accountancy, Business & Management 2
Statement of Financial Position SFP
(Balance Sheet)
= The accounts in the balance sheet are called
permanent accounts or real accounts. Their
balances are forwarded as beginning balances
in the next accounting period
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
3 ELEMENTS of the Statement of Financial
Position
Current Assets – Assets that can be realized
(collected, sold, used up) one year after year-
end date. Examples include Cash, Accounts
Receivable, Merchandise Inventory, Prepaid
Expense, etc.
Noncurrent Assets – Assets that cannot be
realized (collected, sold, used up) one year
after year end date. Examples include
Property, Plant and Equipment (equipment,
furniture, building, land), Long Term
investments, Intangible Assets etc.
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.
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.
ASSIGNMENT
Direction: Guess the account title being
described in each sentence. Identify what
element of SFP (Assets, Liabilities or
Equity) it is listed/ included.
Forms of 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.
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.
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.
Heading
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.
4. Equity/ Owner’s Equity is then added after the
liabilities to complete the accounting equation
(Assets = Liabilities + Equity).
Example: Directions: Prepare a Statement of
Financial Position using a Report Form.
Note: Learners
can use any
business name
and the end of
the current year
for the heading.
ANSWER
KEY!