FABM 2 – WEEK 1
Fundamentals of Accountancy total amount of depreciation booked
Business and Management 2 against the fixed assets of the company.
Module 1: Statement of Financial
Position (SFP)
REPORT FORM AND ACCOUNT FORM
Statement of Financial Position
also known as the balance sheet.
Report Form
this statement includes the amounts
a form of the SFP that shows asset
of the company’s total assets,
accounts first and then liabilities and
liabilities, and owner’s equity which
owner’s equity accounts after.
in totality provides the condition of
the company on a specific date.
Permanent Accounts Account Form
these accounts are permanent in a a form of the SFP that shows assets
sense that their balances remain on the left side and liabilities and
intact from one accounting period to owner’s equity on the right side just
another. like the debit and credit balances of
an account.
Examples of permanent account include
Cash, Accounts Receivable, Accounts Remember:
Payable, Loans Payable and Capital among
others. Basically, assets, liabilities and a. The two are only formats and will yield
equity accounts are permanent the same amount of total assets, liabilities
accounts. They are called permanent and equity.
accounts because the accounts are b. Assets should always be equal to
retained permanently in the SFP until liabilities and equity.
their balances become zero. This is in
contrast with temporary accounts which
are found in the Statement of
GROUP ACCOUNTS UNDER CURRENT
Comprehensive Income (SCI).
ASSETS, NONCURRENT ASSETS,
Temporary accounts unlike permanent
CURRENT LIABILITIES, NONCURRENT
accounts will have zero balances at the end
LIABILITIES AND OWNER’S EQUITY
of the accounting period.
Contra Assets
Current Assets
those accounts that are presented
under the assets portion of the SFP assets that can be realized
but are reductions to the company’s (collected, sold, used up) one year
assets. after year-end date.
These include Allowance for Doubtful Examples include Cash, Accounts
Accounts and Accumulated Receivable, Merchandise Inventory, Prepaid
Depreciation. Allowance for Doubtful Expense, etc.
Accounts is a contra asset to Accounts
Receivable. This represents the estimated
amount that the company may not be able Current Liabilities
to collect from delinquent customers.
Accumulated Depreciation is a contra liabilities that fall due (paid,
asset to the company’s Property, Plant and recognized as revenue) within one
Equipment. This account represents the year after year-end date.
FABM 2 – WEEK 1
Examples include Notes Payable, Accounts another inventory account under its
Payable, Accrued Expenses (example: current assets which is the
Utilities Payable), Unearned Income, etc. Merchandise Inventory, Ending.
Note: Current Assets are arranged based
on which asset can be realized first
(liquidity). Current assets and current
liabilities are also called short term assets
and short-term liabilities.
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 Heading
Assets etc.
i. Name of the Company
ii. Name of the Statement
Noncurrent Liabilities
iii. Date of preparation (emphasis on the
liabilities that do not fall due (paid, wording – “as of”)
recognized as revenue) within one
year after year-end date.
Examples include Loans Payable, Mortgage
Payable, etc.
Note: Noncurrent assets and noncurrent
liabilities are also called long term assets
and long-term liabilities.
DIFFERRENCE OF THE STATEMENT OF
FINANCIAL POSITION OF A SERVICE
COMPANY AND OF A MERCHANDISING
COMPANY
The main difference of the Statements of
the two types of business lies on the
inventory account. A service company ENRICHMENT:
has supplies inventory classified under the
current assets of the company. While a
merchandising company also has supplies
inventory classified under the current 1. A company can have a lot of
assets of the company, the business has assets but still have very low
FABM 2 – WEEK 1
equity. When the company has a lot today for payment of noncurrent liabilities
of assets (example: cash, accounts as these usually have large balances.
receivable, prepaid expenses), Current assets show the company’s ability
owners may sometimes think that to sustain its current operations while
the company is doing well. There are noncurrent assets show the company’s
instances that owners forget that ability to sustain long-term operations.
they might also have a lot of
liabilities which may result to their
equities having a very small balance.
With the preparation of the SFP, the
owner can easily see the assets,
liabilities and equity balances of
his/her company which will show
exactly the financial position of the
company as of a given point in time.
2. Other important matters:
a. Without the SFP, the company
cannot know if it truly owns
anything because in case of
bankruptcy, liabilities are paid
first. – Small businesses don’t
usually account for their assets and
liabilities as long as the owners see
that cash is coming in. They
sometimes forget that when
liabilities become due, if they don’t
have enough current assets to be
able to pay those liabilities, then
they can get in trouble with their
debts.
b. Importance of the format:
Report form vs Account form – these
are just formats. Usually depends on the
reader for preference.
Report form is the normal format for those
not familiar with accounting. Account
form easily shows that the SFP is balanced
and separates assets from liabilities and
equities.
Separation of the current and
noncurrent – current liabilities are
upcoming liabilities, and the company
should be prepared to pay them.
Companies should prepare as early as
