FUNDAMENTALS OF ABM2

STATEMENT OF FINANCIAL POSITION (SFP)

 REVIEW:
1. Accounting Equation
2. ASSETS
3. LIABILITIES
4. OWNER’S EQUITY
5. SINGLE/SOLE PROPRIETORSHIP BUSINESS
6. NORMAL BALANCES OF ACCOUNTS
1. ACCOUNTING EQUATION

A=L+E
WHEREAS, TOTAL ASSETS(A) SHOULD ALWAYS BE EQUALS TO THE
SUM OF TOTAL LIABILITIES (L) AND TOTAL OWNER’S EQUITY (E).
2. ASSETS
● Assets are resources controlled by the business as a result of past
transactions and events and from which future economic benefits are
expected to flow to the business.
● E.g.
○ Cash
○ Accounts Receivable
○ Prepaid Expenses
○ Property, Plant, and Equipment
3. LIABILITIES
● Liabilities are present obligation of an entity arising from past
transactions or events, the settlement of which is expected to result in
an outflow from the business embodying economic benefits.
● E.g.
○ Accounts Payable
○ Accrued Expenses
○ Unearned Revenue
○ Loans Payable
○ Mortgage Payables
4. OWNER’S EQUITY
● The owner’s equity or the residual interest contains the et difference
between total assets and total liabilities. It represent the ownership and
its terminologies changes depending on the form of business
organization.
5. SINGLE/SOLE PROPRIETORSHIP
● Single/Sole Proprietorship is a business that is owned by only one
individual for the practice of trade or profession. It is the simplest and
least costly form of ownership among other forms of business
organization.
6. Normal Balances of Accounts
● Assets (DEBIT) - increases when debited.
● Liabilities and Owner’s Equity (CREDIT) - increases when credited.

NOTE: They are decreased when there are entries on the other side (credit
for assets, debit for liabilities and owner’s equity)
INSTRUCTION: ACTIVITY:
1. Prepare a personal SFP:
a. On a ¼ sheet of intermediate paper, write your current savings
and everything you own (e.g. clothes, pen, calculator, and the
likes) with corresponding acquisition cost.
b. Write down the amount you owe with your friends, family
members, parents (tuition), and the likes.
c. Associate amounts owned with assets and amount owed in
liabilities with the net amount as equity.
STATEMENT OF
FINANCIAL POSITION
STATEMENT OF FINANCIAL POSITION
● SFP is 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 (Haddock, Price, & Farina, 2012)
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) E.g. Cash, Accounts Receivable,
Accounts and Loans Payable, and Capital.
● Assets, Liabilities, and Equity accounts are permanent accounts. They
are called permanent because the accounts are retained in the SFP until
their balances become zero.
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
includes, Allowance for doubtful accounts, and Accumulated
Depreciation.
● Allowance for doubtful accounts is a contra assets for Accounts
Receivable. This represents the estimated amount that the company
may not be able to collect from delinquent customer.
● Accumulated Depreciation is a contra asset to the company’s Property,
Plant, and Equipment. This account represents total amount of
depreciation booked against the fixed assets of the company.
REPORT FORM AND ACCOUNT FORM
1. Report Form - A form of the SFP that shows asset account first and
then liabilities and owner’s equity accounts after.(Haddock, Price, &
Farina, 2012)
2. Account Form - A form of the SFP that shows asset on the left side
and liabilities and owner’s equity on the right side just like the debit
and credit balances of an account. (Haddock, Price, & Farina, 2012)

NOTE: The Report Form and Account Form are just formats of SFP.
Nonetheless, both will yield the same amounts of total assets, liabilities, and
equities.
CURRENT V.S. NON CURRENT
CURRENT V.S. NON CURRENT
1. Noncurrent Assets - Assets that cannot be realized (collected, sold,
used up) one year after year-end. Examples include: Property, Plant,
and Equipment (equipment, furniture, building, land), Long Term
investments, intangible assets, and the likes.
2. Noncurrent Liabilities - Liabilities that do not fall due (paid, recognize
as revenue) within one year after the year-end date. Examples include:
Loans Payable, Mortgage Payable, and the likes.

NOTE: Noncurrent assets and Noncurrent liabilities are also called long
term assets and long term liabilities.