STATEMENT OF
FINANCIAL
POSITION
(BALANCE SHEET)
FINANCIAL STATEMENTS
ARE STRUCTURED FINANCIAL REPRESENTATION OF THE ENTIITY’S FINANCIAL POSITION
AND THE TRANSACTIONS TAKEN BY AN ENTERPRISE (RESULTS OF OPERATIONS)
IT ALSO SHOWS THE RESULTS OF MANAGEMENT’S STEWARDSHIP OF THE RESOURCES
ENTRUSTED TO IT.
IT PROVIDES INFORMATION ABOUT AN ENTERPRISE’S:
• ASSETS • INCOME AND EXPENSES INCLUDING GAINS AND LOSSESS
• LIABILITIES • CONTRIBUTIONS BY, AND DISTRIBUTION TO OWNERS
• EQUITY • CASH FLOWS
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FINANCIAL STATEMENTS
GENERAL PURPOSE FINANCIAL STATEMENTS (“FINANCIAL STATEMENTS”)
• Those intended to meet the needs of users who are not in a position to require an entity
to prepare reports tailored to their particular informations needs.
PURPOSE OF FINANCIAL STATEMENTS
1. Primary Objective – To provide information about the financial position,
financial performance and cash flow of an entity that is useful to wide range of
users.
2. Secondary Objective – To show the results of management’s stewardship over
the entity’s resources.
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Complete Set of Financial
Statements
1. Statement of financial position or balance sheet statement as at the end of the period;
2. Statement of profit and loss and other comprehensive income for the period or
statement of comprehensive income;
3. Statement of changes in equity for the period;
4. Statement of cash flows for the period;
5. Notes to the financial statements.
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GENERAL FEATURES OF FINANCIAL STATEMENTS
1. Fair Presentation and Compliance with PFRS.
• Compliance with the PFRS is presumed to result in fairly presented financial
statements.
• Proper selection and application of accounting policies, proper presentation
of incormation and provision for additional disclosures whenever relevant to
the understanding of the financial statements.
• PAS 1 permits a departure from a PFRS requirement if the relevant
regulatory framework erquires or allows such departure.
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GENERAL FEATURES OF FINANCIAL STATEMENTS
2. Going Concern
• FS are normally prepared on going concern basis unless the the entity has an
intention to liquidate or has no alternative but to do so.
• If the entity is not a going concern, its FS shall be prepared using another
basis and must be disclosed on the notes – the basis used and the reason why
the entity is not on going concern basis.
3. Accrual Basis of Accounting
• Recognition of expense regardless when paid and recognition of revenue
regardless when received.
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GENERAL FEATURES OF FINANCIAL STATEMENTS
5. Offsetting
• Assets and liabilities or income amd expenses are presented separately and
are not offset unless offsetting is required or permitted by a PFRS.
6. Frequency of reporting
• FS are prepared at least annually.
• If an entity changes reporting period to a period longer or shorter than one
year, it shall disclose the following:
- period covered by the financial statements
- reason for using a longer or shorter period
- fact that amounts presented in the FS are not entirely comparable
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GENERAL FEATURES OF FINANCIAL STATEMENTS
7. Comparative Information
• PAS 1 requires an entity to present comparative information in respect of the
preceding period for all amounts reported in the current period’s financial
statement.
8. Consistency of presentation
• The presentation and classification of items in the financial statement is
retained from one period to the next unless a change in presentation is (a) is
required by PFRS and (b) results in information that is reliable and more
relevant.
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STATEMENT OF FINANCIAL POSITION
NATURE
FINANCIAL STATEMENT PROVIDING INFORMATION ABOUT THE ENTITY’S
RESOURCES AVAILABLE FOR THE COMPANY TO USE, CLAIMS AGAINST
THOSE RESOURCES OR OBLIGATIONS THAT THE COMPANY IS REQUIRED TO
SETTLE AND THE REAMINING CLAIM ACCRUING TO THE OWNER AS OF TH
EEND OF THE PERIOD.
USEFULNESS
THIS REPORT IS USEFUL IN ASSESSING PRESENT AND FUTURE CASH FLOWS,
LIQUIDITY AND LONG TERM SOLVENCY.
LIMITATIONS
SFP DOES NOT FULLY PORTRAY THE MARKET VALUE OF THE ENTITY AS A
GOING CONCERN NOR ITS LIQUIDATION VALUE. MANY ASSETS ARE
MEASURED AT THEIR HISTORICAL COSTS.
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BALANCE SHEET
LIABILITIES
ASSETS obligations that the
company is required
to settle
RESOURCES
AVAILABLE FOR THE
The total assets should equal the total of the
COMPANY TO USE claims. Hence, the statement was endearingly
CAPITAL
referred to as Balance Sheet because it is a
belongs to the
owners of the
statement where the two parts must be balance.
company
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1. Creditor’s equity and owner’s equity of Masipag Company amount to P 15,000.00 and P 30,000.00 respectively.
How much is the total assets?
= +
2. Total resources of the firm are P 45,000.00 and proprietorship is P 27,000.00. How much is the total debts?
= +
LCC Corporation company name
Balance Sheet
reporting date “AS OF” As of June 30,2023
Assets Liabilities Assets
Current Assets
Cash and Cash Equivalents P 6,509,494
Current Assets Current Liabilities Accounts Receivable - Trade
Merchandise Inventories
Other Current Assets
522,411
401,538
51,282
Cash and Cash Equivalents P 6,509,494 Accounts Payable Trade P 149,539 Total Current Assets
Fixed Assets
P 7,484,725
Accounts Receivable - Trade 522,411 Accounts Payable Non Trade 340,030
Leasehold Improvement (Net) P 983,354
Office Equipment (Net) 224,547
Tools (Net) 17,079
Merchandise Inventories 401,538
Total Fixed Assets (Net) P 1,224,980
Income Tax Payable 6,924 Other Assets
Security Deposits P 43,660
Other Current Assets 51,282 Interest Payable 9,000 Total Other Assets
Total Assets
P
P
43,660
8,753,365
Total Current Assets P 7,484,725 Total Current Liabilities P 505,493
Current Liabilities
Liabilities
Fixed Assets Non Current Liabilities Accounts Payable Trade P 149,539
Accounts Payable Non Trade 340,030
Leasehold Improvement (Net) P 983,354 Loans Payable P 1,575,000 Income Tax Payable 6,924
Office Equipment (Net) 224,547 Total Non Current Liabilities P 1,575,000 Interest Payable 9,000
Tools (Net) 17,079 Total Current Liabilities P 505,493
Total Fixed Assets (Net) P 1,224,980 Total Liabilities P 2,080,493 Non Current Liabilities
Stockholders’ Equity Loans Payable
Total Non Current Liabilities
P
P
1,575,000
1,575,000
Other Assets
Common Stock P 6,000,000 Total Liabilities P 2,080,493
Security Deposits P 43,660
Retained Earnings 672,872
Total Other Assets P 43,660 Total Equity P 6,672,872 Stockholders’ Equity
Common Stock P 6,000,000
Retained Earnings 672,872
Total Assets P 8,753,365 Total Liabilities and Stockholders' Equity 8,753,365 Total Equity P 6,672,872
Total Liabilities and Stockholders' Equity 8,753,365
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ELEMENTS OF STATEMENT OF FINANCIAL POSITION
ASSETS LIABILITIES EQUITY
These are resources These are present This represented residual
controlled by the obligations of the company interest in the assets of the
entity as a result of arising from past events, entity after deducting all its
past events and from the settlement of which is liabilities.
which future expected to result in an
economic benefits are outflow from the resources
expected to flow to embodying economic
the entity. benefits
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Assets Section
Assets classified into two groups
Current Assets Non Current Assets
a. It expects to realize the asset, or a. All other assets not classified as
intend to sell or consume it in its current assets are non current assets.
normal operating cycle;
b. It holds the asset primarily for the
purpose of trading;
c. It expects to realize the asset within
twelve month after the reporting
period; or
d. The asset is cash or 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. 15
Current Assets
Cash and Cash Equivalents
Cash includes cash in hand consisting of coins, currency and
undeposited checks: money orders and drafts and cash in
banks that are readily available for current use of entity
Cash equivalents include short term, highly liquid investments
that are readily convertible to known amount of cash and are so
near their maturity that they present insignificant risk of change
in value because of changes in interest rate.
Short Term Investment in Marketable Securities
These includes investment in debt and equity securities which
management intends to convert in cash within one year of the
normal operating cycle (whichever is longer).
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Current Assets
Receivables
These includes trade accounts and note receivable, non trade
short term receivables from affiliates, officers, employees.
Inventories
These includes goods (merchandise or finished goods) held for
sale in the normal course of the business plus in the case of
manufacturing companies, raw materials and goods in
process.
Prepaid Expense
These are assets created by the prepayment (advance) of
cash or incurrence of a liability.
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Non-Current Assets
Investment in Long term debt and equity securities
Held as either “Held to Maturity” or “Available for Sales”.
Property, Plant and Equipment
These are tangible assets that are held by an enterprise for
use in the production or supply of goods or services or for
administrative purposes and which are expected to be used
during more than one period.
Land, Building, Machinery, Equipment, Furnitures and Fixtures
Intangible Assets
These are identifiable non monetary assets without physical
substance and from which future economic benefits are
expected to flow to the entity.
Patents, Franchise, Copyright, Goodwill, Trademark
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Liabilities Section
Liabilities are classified into two groups
Current Liabilities Non Current Liabilities
a. It expects to be settled in its normal a. All other liabilities not classified as
operating cycle; current liabilities are non current
liabilities.
b. It is held primarily for the purpose
of trading;
c. The liability is due to be settled
within twelve months after the
reporting period; or
d. Its does not have an unconditional
right to defer settlement of the liability
for at least twelve months after the
reporting period.
1
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Current Liabilities
Trade Accounts and Notes Payable
These are obligations arising from the firm’s on going
operations including acquisition of merchandise, materials,
supplies and services used in the production of sales goods or
services
Current Portion of Long Term Debt
Portions of long term liabilities (bonds, notes) which become
payable with in the upcoming year.
Accrued Expense
These are expenses incurred as of the financial reporting date
for which cash has not been paid. (Accrued wages, accrued
interest and accrued property taxes).
2
0
Current Liabilities
Income Taxes Payable
Represents the unpaid portion of income tax to be paid to the
Bureau of Internal Revenue
Agency Liabilities
Collection for third parties (Withholdign Taxes Payable, SSS
Premium Payable, VAT Payable).
Unearned Revenue
Advances from Customers – relating to future delivery of
goods or services.
2
1
Non-Current Liabilities
Long Term Loan Payable
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.
Installment Notes Payable
This represents an indebtedness that is repaid through
installment over a period exceeding one year.
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2
Equity Section
Sole Proprietorship Owners’ Capital
Partnership Partners’ Equity
Corporation Shareholders' Equity
SHARE CAPITAL
This is the firm’s state capital or legal capital. It is the par value of issued or
outstanding shares of the corporation and represent the that is not available for
dividend declaration. Legal capital is specified in the articles of the incorporation for
the corporation approved by the SEC.
ACCUMULATED PROFIT
This represents a corporation’s accumulated net earnings, less dividends paid out, since
the company’s inception. A negative balance in retained earnings is called a “deficit”
and usually arises when the company experiences operating losses.
Balance Sheet (Sole Proprietor)
Balance Sheet (Partnership)
Balance Sheet (Corporation)
REFINANCING
Refers to the replacement of an existing debt with a new one but with
different terms.
Long term obligations that is currently maturing is recorded as a CURRENT
LIABILITIES when refinanced unless the entity has the right, at the end of
reporting period, to roll over the obligation for at least 12 months.
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REFINANCING
Refers to the replacement of an existing debt with a new one but with
different terms.
Long term obligations that is currently maturing is recorded as a CURRENT
LIABILITIES when refinanced unless the entity has the right, at the end of
reporting period, to roll over the obligation for at least 12 months.
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QUESTIONS
1. What are the three elements of balance sheet?
2. State the accounting equation
3. What is a more formal and descriptive name for the balance sheet?
4. Name and describe the two formats of the statement of financial position.
5. Formula of working capital.
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Q
AND
A
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EXERCISES
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EXERCISES
EXERCISES
EXERCISES
EXERCISES
EXERCISES
