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ACCOUNTANCY, BUSINESS
AND MANAGEMENT 2
LESSON 1; STATEMENT
OF FINANCIAL POSITION
SNAPSHOT The topmost part of the SPF is the title.
It was previously referred to as Balance Sheet. The first line of the title shows the name of the company.
It is divided into two parts -The assets are on the The second line identifies the financial statement which
right side and the claims are on the other side. is the SFP.
Claims of creditors are called Liabilities The third line is the date of the SFP. It states “as of”
which tells the reader that the balances reported on the
Claims of owners are referred to as Equity
SFP is the net effect of all transactions related to the
The total of the assets should equal the total of specific account from the date of establishment of the
the claims company up to the date of the SFP.
KINDS OF ASSETS
CASH AND CASH EQUIVALENTS
2. RECEIVABLES – is a general term that refers to the company’s right to collect or claim payment. The
right to collect comes from unpaid sales or lending activities. The company can collect cash or
receivable may be settled in merchandise.
A sale agreement may require a customer to pay the seller immediately upon delivery, this is called cash
on delivery or COD. In contrast to COD, a customer may instead promise to pay the seller at some
future time after delivery. This is a credit sales agreement and it gives rise to Accounts Receivable.
Notes Receivable is evidenced by promissory notes (PN). PN is a legal document that says the borrower
promises to pay, on scheduled payment dates, a specific sum called principal and interest based on
principal and stated interest rate.
KINDS OF ASSETS
3. INVENTORY – The inventory account reports the cost of unsold merchandise. The inventory
account of a trading/merchandising business contains merchandise held for resale.
Consignment is an important issue in inventory accounting. The owner places his goods “on
consignment” in the premises of the store owner. The store is not obligated to purchase the goods.
The owner may also withdraw his unsold goods from the store at any time.
The store owner, on the other hand, will remit to the merchandise owner the proceeds form the
sale of the consigned items. The income of the store owner may be in the form of commissions or
rent from the space used to display the items. The consigned goods should not be reported as an
inventory even if they are held in the store premises. Rather the consigned goods will be reported
as inventory by the merchandise owner.
KINDS OF ASSETS
4. PREPAID EXPENSES – refer to future expenses that the company
had paid for in advance.
Examples of Prepaid expenses:
Loads or cards (Communication)
Supplies
Rent
Insurance
KINDS OF ASSETS
5. PROPERTY, PLANT, AND EQUIPMENT – PPE for short, are long term assets that are used in
the operations of the company.. These are classified as long-term asset (non-current) because
these assets will be used in the business for more than one year.
E.g. Land, building, warehouse, automobiles, delivery vehicle, computer equipment and
manufacturing equipment.
As the asset is used, a portion of the cost is transferred to expense (depreciation)
Not all PPEs are subject to depreciation. Land is not depreciated because this asset does not
have a useful life. More so, the value of land increases with the passage of time.
KINDS OF ASSETS
6. INTANGIBLE ASSETS – are long-term assets similar to PPEs. These assets will be
used in the business for more than a year. The allocation of the cost of intangible
assets to the year it was used is called amortization.
These are assets that you cannot see or touch. There may be a piece of paper as
evidence of the asset but the actual asset is intangible.
Examples are patent, brand name and trademark. Patent is a grant conferred by
the government to the creator of an invention. Brand name refers to word or
words used to identify a specific product and its manufacturer. Trademark is a
symbol that represents a brand.
KINDS OF ASSETS