Fundamentals of Accountancy, Business and Management 2

1. Fundamentals of Accountancy,
Business and Management 2
Prerequisite: Fundamentals of
Accountancy, Business and
Management 1

2. Course Description: The course deals with the preparation and
analysis of financial statements of a service business and
merchandising business using horizontal and vertical analyses
and financial ratios. Knowledge and skills in the analysis of
financial statements will aid the future entrepreneurs in making
sound economic decisions.
Course Outline:
1. Statement of Financial Position (SFP)
2. Statement of Comprehensive Income (SCI)
3. Statement of Changes in Equity (SCE)
4. Cash Flow Statement (CFS)
5. Analysis and Interpretation of Financial Statements
6. Accounting Books –Journal and Ledger
7. Basic Documents and Transactions related to Bank Deposits
8. Bank Reconciliation Statement
9. Accounting Practice Set
10.Income and Business Taxation

3. I. Statement of Financial Position
(SFP)
A. LEARNING OBJECTIVES:
At the end of the topic, the students shall be able
to:
1. Identify the elements of the SFP and describe
each of these items for a single/sole
proprietorship business
2. Prepare an SFP for a single/sole
proprietorship business using the report form
3. Prepare an SFP for a single/sole
proprietorship business using the account

4. B. Present terms
At the end of this topic, the students shall be able
to define the following terms:
1. Statement of Financial Position/Permanent
Accounts
2. Assets
3. Contra Assets
4. Accrued Income
5. Prepaid Assets
6. Liabilities
7. Contra Liability
8. Accrued Expense
9. Unearned Income
10. Equity
11. Report Form

5. Simple Recall:
Define the following terms
and give examples each.
a. Accounting Equation
b. Assets
c. Liabilities
d. Equity
e. Single/sole Proprietorship
Business

6. a. Accounting Equation
Assets = Liabilities + Equity
b. Assets are resources owned by the
business. Examples: Cash, Accounts
Receivable
c. Liabilities are obligations by the
business. Examples: Accounts
Payable, Loan Payable

7. d. Equity is the residual interest of the
owner of the business. Examples:
Capital, Drawings
e. Single/sole Proprietorship Business
is owned by one person; the
simplest, and the most common form
of business organization. Examples:
Sari-sari store, Beauty Parlor, etc.
(as long as there is one owner)

8. What is again the normal
balance of assets,
liabilities, and equity?
How are these accounts
increased/decreased?

9.  Assets are increased
when debited while
liabilities and equity are
increased when
credited. They are
decreased when there are
entries on the other side
(credit for assets and debit
for liabilities).

10. ACTIVITY
Prepare a Personal SFP:
a. Get a ¼ sheet of paper (any paper will do if
you don’t have a ¼ sheet)
b. Write your current savings and everything
that you own (clothes, pen, pencil, etc.)
c. Write the amount that you owe your friends,
family members, parents (tuition)
d. Deduct the amount you owe from the
amount you own
e. Associate amounts owned with assets and
amount owed with liabilities with the net
amount as equity

11. STATEMENT OF FINANCIAL
POSITION
 Also known as the balance sheet.
 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)
 Some describe the balance sheet as a "snapshot"
of the company's financial position at a point (a
moment or an instant) in time.
 For example, the amounts reported on a balance
sheet dated December 31, 2017 reflect that
instant when all the transactions through
December 31 have been recorded.

12. 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)
 Examples of permanent account include Cash, Accounts
Receivable, Accounts Payable, Loans Payable and Capital
among others.
 Basically, assets, liabilities and equity accounts are
permanent accounts. They are called permanent accounts
because the accounts are retained permanently in the SFP
until their balances become zero. This is in contrast with
temporary accounts which are found in the Statement of
Comprehensive Income (SCI).
 Temporary accounts unlike permanent accounts will have
zero balances at the end of the accounting period.

13. 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 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

14. LEARNING IS FUN COMPANY
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2016

16. Report Form – A form of the SFP that shows
asset accounts first and then liabilities and
owner’s equity accounts after. (Haddock, Price,
& Farina, 2012)The balance sheet shown
earlier is in report form.
Account Form – A form of the SFP that shows
assets 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 two are only formats and will yield the
same amount of total assets, liabilities and
equity and that total assets should always be
equal to total liabilities and equity.

17. Elements of the Statement of
Financial Position (SFP)
1. Assets - are things owned by the
business.
2. Liabilities - are debts owed by
the business.
3. Owner’s Equity - refers to the
investment or equity of the owner.

18. Different Parts of the Statement of Financial
Position
a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the
wording – “as of”)
b. Current Assets – Assets that can be
realized (collected, sold, used up) one year
after year-end date. Examples include Cash,
Accounts Receivable, Accrued Income,
Merchandise Inventory, Prepaid Expense, etc.

19. Different Parts of the Statement of Financial Position
c. Noncurrent Assets – Assets that cannot be
realized (collected, sold, used up) one year
after yearend date. Examples include
Property, Plant and Equipment (equipment,
furniture, building, land), Long Term
investments, Intangible Assets etc.
d. 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.

20. Different Parts of the Statement of Financial Position
e. 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.
f. Owner’s Equity - often called net assets, is the
owners’ claim to company assets after all the
liabilities have been paid off. Examples include
Owner’s Capital, Withdrawals, etc.
 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 shot term liabilities.
 Noncurrent assets and noncurrent liabilities are also called
long term assets and long-term liabilities.

21. Difference 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 has supplies
inventory classified under the current assets
of the company. While a merchandising
company also has supplies inventory
classified under the current assets of the
company, the business has another inventory
account under its current assets which is the
Merchandise Inventory, Ending.

22. Different Parts of the Statement of Financial
Position

24. Account Form

25. ACTIVITY 1: Classification between Current and
Noncurrent
 1. Materials needed: None
 2. Learners should be grouped into 4 groups. Each group will
start with 100 points.
 3. 1st group will be the current assets. 2nd group will be the
noncurrent assets. 3rd group will be the current liabilities. 4th
group will be the noncurrent liabilities.
 4. Teacher will enumerate accounts (cash, accounts receivable,
equipment, accounts payable, loans payable, owners’ equity).
 5. For each account, the group where the account should be
classified into should stand while the other groups should stay
seated. For every member who was not able to stand when the
group is required to or for every member who stood when the
group is not required to, a point will be deducted from the group.
 6. Each group should reflect on the mistakes after the activity.

26. 1. Accounts receivable
2. Accounts payable
3. Supplies
4. Computer equipment
5. Loans payable due within one year from year-end date
6. Accumulated depreciation – computer equipment
7. Prepaid insurance
8. Interest payable
9. Notes payable
10. Cash
11. Buildings
12. Mortgage payable
13. Land
14. Salaries payable
15. Loans payable due within 3 years from year-end date

27. Activity 2: Problem Solving Exercises
Easy:
1. Learning is Fun Company had current
assets amounting to Php 100,000.
Noncurrent assets for the year totaled
Php 76,000. How much is the company’s
total assets?
2. Happy Selling Company’s total
liabilities amounted Php 10,000. Total
equity had an ending balance of
Php 20,000. How much is total assets?

28. Problem Solving Exercises
Medium:
3. Happy Selling’s had the following accounts at year
end: Cash-250,000, Accounts Payable-70,000,
Prepaid Expense-15,000. Compute for the
company’s current assets.
4. Happy Selling’s Accounts Receivable amounted to
Php 500,000. Prepaid Expense and Unearned
Income totaled Php 30,000 and Php 10,000
respectively. Cash balance amounted to
Php 100,000 while Accounts Payable and Inventory
totaled to Php 20,000 and Php 10,000 respectively.
How much is the company’s current assets? Current
liabilities?

29. Problem Solving Exercises
Difficult:
5. Company’s Total Liabilities and Equity amounted to
Php 285,000. Total noncurrent assets ended at
Php 85,000. Cash totaled Php50,000. Inventory
amounted to Php100,000. Assuming the company
had no other assets, how much is Accounts
Receivable?
6. Total assets amounted to Php575,000. Total equity
amounted to Php 250,000. Accounts Payable
amounted to Php 50,000 while Unearned Income
totaled Php 85,000. Assuming there are no other
current liabilities, compute for the company’s
noncurrent liabilities.

30. Activity 3: Application
Directions: Prepare a Statement of Financial
Position for ABZ Company as of December 31,
2020 using the following accounts (in report form):
Cash – 5,000.00
Loans Payable – 77,500.00
Accounts Receivable – 2,600.00
Supplies – 2,300.00
Equipment – 17,000.00
Owner’s equity – 40,000.00
Accounts Payable – 22,400.00
Building – 113,000.00

31. Activity 4: Application
You were hired by Mr. Juan Dela Cruz to prepare his sari-sari store’s
Statement of Financial Position. In order to prepare the statement, you
identified the following assets and liabilities of Mr. Dela Cruz:
a. His sari-sari store has cash deposited in a bank account amounting to
P50,000
b. His sari-sari store had a lot of uncollected sales from customers
amounting to P75,000
c. The total amount of merchandise left inside the store is P30,000
d. He already paid one year’s rent in advance amounting to P12,000
e. The value of all the company’s furniture amounted to P100,000
f. He bought merchandise from his supplier amounting to P25,000 and the
supplier agreed that payment can be made 2 months after year-end
g. SSS, Philhealth and Pag-ibig Payables for his one employee totaled
P5,000
h. The sari-sari store had outstanding liabilities to utility companies
amounting to P3,000
i. He had a loan from the bank amounting to P50,000 to be paid in 3 years