LET’S REVIEW!

ELEMENTS OF FINANCIAL
POSITION
• ASSETS
• LIABILITIES
• EQUITY
 LEARNINGOBJECTIVES
• Identify the elements of the SFP and describe each of
them;
• Appreciate the importance of the SFP in a business
organization; and
• Prepare an SFP using the report form and the account
form with proper classification of items as current and
noncurrent;
 LEARNING COMPETENCIES
• The learners…
1. identify the elements of the SFP and describe each of them
ABM_FABM12-Ia-b 1
2. classify the elements of the SFP into current and noncurrent items
ABM_FABM12-Ia-b-2
3. prepare the SFP of a single proprietorship ABM_FABM12-Ia-b-3
4. prepare an SFP using the report form and the account form with
proper classification of items as current and noncurrent
ABM_FABM12-Ia-b-4
PREPARATION OF THE STATEMENT
OF FINANCIAL POSITION
• The heading for the Statement of Financial
Position must include the name of the
business, the name of statement and the
date which is at the end of the period being
reported.
 FORMAT
• The elements may be presented using either :
A. ACCOUNT FORM
B. REPORT FORM
A.ACCOUNT FORM
This presentation reflects the basic accounting
equation where the assets are listed on the left-hand
side of the statement while liabilities and owner’s
equity are listed on the right-hand side.
Account form reflects the basic accounting equation:
ASSETS = LIABILITIES + OWNERS’ EQUITY
 REPORT FORM
• This presentation lists the accounts in a downward
sequence. Thus, assets are listed at the top while the
liabilities and owner’s equity are shown below the assets
sections.
 ASSETS
Are classified into 2 groups:
A.Current Assets
B.Non-Current Assets
 CURRENT ASSETS
• An asset shall be classified as a current asset when:
a) It expects to realize the asset, or intends to sell or
consume it, in its normal operating cycle;
b) It holds the asset primarily for the purpose of trading;
c) It expects to realize the asset within twelve months
after the reporting period; or
d) The asset is cash or a cash equivalent unless the asset
is restricted from being exchanged or used to settle a
liability for at least twelve months after the reporting
period.
• CURRENT ASSETS include assets (such as inventories
and trade receivables) that are sold, consumed or realized
as part of the normal operating cycle even reporting
period.
• OPERATING CYCLE of an entity is the time between the
acquisition of assets for processing and their realization in
cash and cash equivalents.
• When the entity’s normal operating cycle is not clearly
identifiable, it is assumed to be twelve months.
 EXAMPLES OF CURRENT
ASSETS:
a) Cash and Cash Equivalents
b) Short-term Investments in Marketable Securities
c) Receivables
d) Inventories
e) prepayments
 CASH & CASH EQUIVALENTS
CASH :
 Includes physical currency (coins and banknotes).
 Also includes demand deposits like checking and savings accounts.
 Money orders, cashier's checks, and other instruments readily convertible to
cash are also considered cash.
 It's the most liquid asset, meaning it can be easily used for
transactions.
CASH EQUIVALENT
 Short-term, highly liquid investments that mature within 90 days or
less.
 They are readily convertible to known amounts of cash with minimal
risk of value fluctuations.
 They are considered near cash due to their ease of conversion.
 EXAMPLES OF CASH
EQUIVALENTS:
• TREASURY BILLS
• COMMERCIAL PAPER
• BANKER’S ACCEPTANCE
• MONEY MARKET FUNDS
• CERTIFICATES OF DEPOSIT WITH SHORT MATURITIES
SHORT –TERM INVESTMENT IN
MARKETABLE SECURITIES
• Short-term investments, also known as marketable
securities or temporary investments, are financial
investments that can easily be converted to cash, typically
within five years. Many short-term investments are sold or
converted to cash after a period of only three-12 months
• RECEIVABLES represents money that a
business is owed by its clients, often in the
form of unpaid invoices.
• Accounts receivable, or receivables, can be considered a line of
credit extended by a company and normally have terms that
require payments be made within a certain period of time. If
effect, the company has accepted an IOU from the client.
Depending on the agreement between company and client, the
payment might be due in anywhere from a few days to 30 days,
60 days, 90 days, or, in some cases, up to a year. At some point
along the way, interest on the debt might also begin to accrue.
 INVENTORY
• The finished products, raw materials, or parts that a
company intends to sell or use in production to create
goods for sale. They are considered current assets on a
company's balance sheet and represent items held for
sale or consumption in the normal course of business.
• The comprehensive record and management of an
organization's physical and digital assets,
including hardware, software, and other resources.
 PREPAID EXPENSES
• Represent advance payments made by a company for goods
and services to be received in the future. They're considered
current assets.
• Examples: rent, insurance, advertising, subscriptions, leases,
NON-CURRENT ASSETS/LONG-
TERM ASSETS
• resources owned by a business that are
not expected to be converted into cash or
used up within one year.
• These includes tangibles, intangible and
financial assets of a long-term nature.
 EXAMPLES OF NON-CURRENT
ASSETS:
• Investments in long-term debit and equity securities
• Property, plant, and equipment
• Intangible assets
• Investment in funds/Investment property
• Deferred charges
• Non-current assets held for sale
 PROPERTY, PLANT, &
EQUIPMENT (PPE)
• Tangible assets that are held by an enterprise for
use in the production or supply of goods or
services or for rental to others or for
administrative purposes and which are expected
to be used during more than one period.
• Examples: land, buildings, machinery, and
equipment, furniture and fixtures, motor vehicles.
 INTANGIBLE ASSETS
• Assets that are not physical in nature. Corporate
intellectual property (patents, trademarks,
copyrights,goodwill etc.)
INVESTMENT PROPERTY
• Investment in land or a building with the
intention of earning rentals or for capital
appreciation.
 INVESTMENT IN FUND

• An investment fund is a financial vehicle

that gathers money from multiple investors
to invest in a portfolio of assets.
• These funds are managed by professionals who
make investment decisions based on the fund's
objectives and risk profile.
• Example: Pag-Ibig Fund/MP2
LIABILITIES
 CURRENT LIABILITIES
• Obligations that are payable within one year or
the normal operating cycle of the business.
• Current liabilities are classified as follows:
• Expected to be settled in its normal operating cycle;
• Held primarily for the purpose of trading;
• Due to be settled within twelve months after the
reporting period; or
 TRADING ACCOUNTS/NOTES
PAYABLE
• A company's written, unconditional promises to pay a
specific sum of money to a lender, either on demand or at
a defined future date.
• EXAMPLE: loans, detailed promissory notes, vehicle purchases or
building acquisitions
 CURRENTLY MATURING
PORTION OF LONG-TERM DEBT
• refers to the portion of a company's long-
term liabilities that will become due within
the next 12 months.
• Example: mortgages, bonds, house and lot
and other loans that are typically repaid
over a period of 1 year or more.
 ACCRUED EXPENSES
• These are expenses incurred as of the financial
reporting date for which cash has not been paid.
• Examples: salaries, interest, or utilities that are
incurred but not yet paid
• Since, these expenses are incurred but not paid, then it
becomes an obligation of the company to pay it on specific
date thus making it part of the liability.
 INCOME TAXES PAYABLE
• Unpaid portion of income tax to be paid to the Bureau of
Internal Revenue.
• Agency Liabilities or collection of third parties these are
collections for third parties from customers or employees
that will have to be remitted to the appropriate
government or other units.
• Examples: SSS, Value-Added taxes
 NON-CURRENT LIABILITIES
• LONG-TERM LOAN PAYABLE refers to a long term debt
whose maturity extends beyond one year and is evidenced
by a formal document called promissory note issued in
exchange for a loan from a bank or for a noncash asset
such as credit or equipment purchased.
• INSTALLMENT NOTES PAYABLE represents the
indebtedness that is repaid through installment over a
period exceeding one year.
 EQUITY SECTION
• In a sole proprietorship statement of financial position,
this section represents the owner’s residual interest in the
business.
• For Corporations, equity is also known as shareholders’
equity.
• For sole proprietorships or partnerships this called
owners’ equity.
• FORMULA: ASSETS – LIABILITIES = EQUITY