Name: Giovanni Oliveria.

Opog

12-Venus

1.) What is statement of financial position?

The statement of financial position is another name for the balance sheet. It is one of the
main financial statements and it reports an entity's assets, liabilities, and the difference in their
totals.

2.) Identify account titles under assets, liabilities and capital accounts of the statement of
financial position?

Asset accounts are one of the three major classifications of balance sheet accounts:

Assets
Liabilities
Stockholders' equity (or owner's equity)
The ending balances in the balance sheet accounts will be carried forward to the next accounting year.
Hence the balance sheet accounts are called permanent accounts or real accounts.
The asset accounts are usually listed first in the company's chart of accounts and in the general ledger. In
the general ledger the asset accounts will normally have debit balances.

The balances in some of the asset accounts will be combined and presented as a single amount when
the balance sheet is prepared. For example, if a company has ten checking accounts, the balances will
be combined and the total amount will be reported on the balance sheet as the asset Cash.

Assets include the things or resources that a company owns, that were acquired in a transaction, and
have a future value that can be measured. Assets also include some costs that are prepaid or deferred
and will become expenses as the costs are used up over time.

Here are some examples of asset accounts:

Cash
Short-term Investments
Accounts Receivable
Allowance for Doubtful Accounts (a contra-asset account)
Accrued Revenues/Receivables
Prepaid Expenses
Inventory
Supplies
Long-term Investments
Land
Buildings
Equipment
Vehicles
 Furniture and Fixtures
Accumulated Depreciation (a contra-asset account)

Descriptions of asset accounts

The following are brief descriptions of some common asset accounts.

Cash
Cash includes currency, coins, checking account balances, petty cash funds, and customers' checks that
have not yet been deposited. A company is likely to have a separate general ledger account for each
checking account, petty cash fund, etc. but will combine the amounts and will report the total as Cash (or
Cash and Cash Equivalents) on the balance sheet.
Short-term Investments
Short-term or temporary investments may include certificates of deposit, bonds, notes, etc. that will
mature in less than one year. It may also include investments in the common or preferred stock of
another corporation if the stock can be easily sold on a stock exchange.
Accounts Receivable
Accounts receivable is a right to receive an amount as the result of delivering goods or services on credit.
Under the accrual method of accounting, Accounts Receivable is debited at the time of a credit sale.
Later, when the customer pays the amount owed, the company will credit Accounts Receivable (and will
debit Cash).
Allowance for Doubtful Accounts
The Allowance for Doubtful Accounts is a contra-asset account since its balance is intended to be a credit
balance (or a zero balance). When the balance in this account is combined with the balance in Accounts
Receivable, the resulting amount is known as the net realizable value of the receivables. The Allowance
for Doubtful Accounts is used under the allowance method of reporting bad debts expense.
Accrued Revenues/Receivables
Under the accrual method of accounting, revenues are to be reported when goods or services have been
delivered even if a sales invoice has not been generated. This account will report the amounts that a
company has a right to receive but the sales invoices have yet to be prepared or entered in Accounts
Receivable.
Prepaid Expenses
These are future expenses that have already been paid. The amounts appear as assets until the costs
have been used up or expire. A common example of a prepaid expense is the payment for vehicle
insurance. To illustrate this, let's assume that on December 29, a new company pays $6,000 for the
insurance covering its vehicles for the six-month period that will begin on January 1. As of December 31,
the entire $6,000 will be a prepaid expense because none of the cost has expired. Since none of the cost
expired in December, there is no insurance expense in December. The insurance expense will begin in
January at a rate of $1,000 per month. This is depicted in the following chart:

*The expense is the amount that is expiring during the month.

**The prepaid amounts are the unexpired amounts and should be the balance in the asset account
Prepaid Expenses or Prepaid Insurance at the end of each of the months.
Inventory
Inventory is the cost of goods that have been purchased or manufactured and have not yet been sold.

Supplies
Supplies could be office supplies, manufacturing supplies, packaging supplies or other supplies that are
on hand. The cost of the supplies that remain on hand is reported as an asset.
Long-term Investments
This account or asset category will be reported on the balance sheet immediately following current
assets. It may include investments in the common stock, preferred stock, and bonds of another
corporation. It also includes real estate being held for sale and also the money that is restricted for a long-
term purpose such as a building project or the repurchase of bonds payable. The cash surrender value of
a life insurance policy owned by a company is also reported under this asset heading.
Land
This account represents the property portion of the balance sheet heading "Property, plant and
equipment." It reports the cost of land used in a business. Since land is assumed to last indefinitely, the
cost of land is not depreciated.
Buildings
This account will report the cost of the building used in the business. The cost of buildings will be
depreciated over their useful lives.
Equipment
This account reports the cost of the machinery and equipment used in the business. The cost of
equipment will be depreciated over the equipment's useful life.
Vehicles
This account reports the cost of trucks, trailers, and automobiles used in the business. The cost of
vehicles is to be depreciated over the vehicles' useful lives.
Furniture and Fixtures
This account reports the cost of desks, chairs, shelving, etc. that are used in the business. The cost of
furniture and fixtures is to be depreciated over the useful lives.
Accumulated Depreciation
Accumulated Depreciation is known as a contra asset account because it has a credit balance instead of
a debit balance that is typical for asset accounts. Whenever Depreciation Expense is debited for the
periodic depreciation of the buildings, equipment, vehicles, etc. the account Accumulated Depreciation is
credited. The credit balance in Accumulated Depreciation will continue to grow until an asset is sold or
scrapped. However, the maximum amount of the credit balance is the cost of the asset(s).

Liabilities

Liabilities are obligations of the company; they are amounts owed to creditors for a past transaction and
they usually have the word "payable" in their account title. Along with owner's equity, liabilities can be
thought of as a source of the company's assets. They can also be thought of as a claim against a
company's assets. For example, a company's balance sheet reports assets of $100,000 and Accounts
Payable of $40,000 and owner's equity of $60,000. The source of the company's assets are
creditors/suppliers for $40,000 and the owners for $60,000. The creditors/suppliers have a claim against
the company's assets and the owner can claim what remains after the Accounts Payable have been paid.
Liabilities also include amounts received in advance for future services. Since the amount received
(recorded as the asset Cash) has not yet been earned, the company defers the reporting of revenues and
instead reports a liability such as Unearned Revenues or Customer Deposits. (For a further discussion on
deferred revenues/prepayments see the Explanation of Adjusting Entries.)
Examples of liability accounts reported on a company's balance sheet include:

Notes Payable
Accounts Payable
Salaries Payable
Wages Payable
Interest Payable
Other Accrued Expenses Payable
Income Taxes Payable
Customer Deposits
Warranty Liability
Lawsuits Payable
 Unearned Revenues
Bonds Payable
Liability accounts will normally have credit balances.

Contra liabilities are liability accounts with debit balances. (A debit balance in a liability account is
contraryor contrato a liability account's usual credit balance.) Examples of contra liability accounts
include:
Discount on Notes Payable
Discount on Bonds Payable
Debt Issue Costs
Bond Issue Costs

Classifications Of Liabilities On The Balance Sheet

Liability and contra liability accounts are usually classified (put into distinct groupings, categories, or
classifications) on the balance sheet. The liability classifications and their order of appearance on the
balance sheet are:
Current Liabilities
Long Term Liabilities
To see how various liability accounts are placed within these classifications, click here to view the
sample balance sheet in Part 4.

Commitments
A company's commitments (such as signing a contract to obtain future services or to purchase goods)
may be legallybinding, but they are not considered a liability on the balance sheet until some services or
goods have been received. Commitments (if significant in amount) should be disclosed in the notes to the
balance sheet.

Form vs. Substance

The leasing of a certain asset mayon the surfaceappear to be a rental of the asset, but in substance
it may involve a binding agreement to purchase the asset and to finance it through monthly payments.
Accountants must look past the form and focus on the substance of the transaction. If, in substance, a
lease is an agreement to purchase an asset and to create a note payable, the accounting rules require
that the asset and the liability be reported in the accounts and on the balance sheet.

Contingent Liabilities
Three examples of contingent liabilities include warranty of a company's products, the guarantee of
another party's loan, and lawsuits filed against a company. Contingent liabilities are potential liabilities.
Because they are dependent upon some future event occurring or not occurring, they may or may not
become actual liabilities.

To illustrate this, let's assume that a company is sued for $100,000 by a former employee who claims he
was wrongfully terminated. Does the company have a liability of $100,000? It depends. If the company
was justified in the termination of the employee and has documentation and witnesses to support its
action, this might be considered a frivolous lawsuit and there may be no liability. On the other hand, if the
company was not justified in the termination and it is clear that the company acted improperly, the
company will likely have an income statement loss and a balance sheet liability.
The accounting rules for these contingencies are as follows: If the contingent loss
is probable and the amount of the loss can be estimated, the company needs to record a liability on its
balance sheet and a loss on its income statement. If the contingent loss is remote, no liability or loss is
recorded and there is no need to include this in the notes to the financial statements. If the contingent
loss lies somewhere in between, it should be disclosed in the notes to the financial statements.

Current vs. Long-term Liabilities

If a company has a loan payable that requires it to make monthly payments for several years, only
the principal due in the next twelve months should be reported on the balance sheet as a current
liability. The remaining principal amount should be reported as a long-term liability. The interest on the
loan that pertains to the future is not recorded on the balance sheet; only unpaid interest up to the date of
the balance sheet is reported as a liability.

Notes to the Financial Statements

As the above discussion indicates, the notes to the financial statements can reveal important information
that should not be overlooked when reading a company's balance sheet.

Owner's (Stockholders') Equity

Owner's Equityalong with liabilitiescan be thought of as a source of the company's assets. Owner's
equity is sometimes referred to as the book value of the company, because owner's equity is equal to the
reported asset amounts minus the reported liability amounts.
Owner's equity may also be referred to as the residual of assets minus liabilities. These references make
sense if you think of the basic accounting equation:
Assets = Liabilities + Owner's Equity
and just rearrange the terms:
Owner's Equity = Assets - Liabilities
"Owner's Equity" are the words used on the balance sheet when the company is a sole proprietorship. If
the company is a corporation, the words Stockholders' Equity are used instead of Owner's Equity. An
example of an owner's equity account is Mary Smith, Capital (where Mary Smith is the owner of the sole
proprietorship). Examples of stockholders' equity accounts include:
Common Stock
Preferred Stock
Paid-in Capital in Excess of Par Value
Paid-in Capital from Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income
Etc.
Both owner's equity and stockholders' equity accounts will normally have credit balances.
Contra owner's equity accounts are a category of owner equity accounts with debit balances. (A debit
balance in an owner's equity account is contraryor contrato an owner's equity account's usual credit
balance.) An example of a contra owner's equity account is Mary Smith, Drawing (where Mary Smith is
the owner of the sole proprietorship). An example of a contra stockholders' equity account is Treasury
Stock.

Classifications of Owner's Equity On The Balance Sheet

Owner's equity is generally represented on the balance sheet with two or three accounts (e.g., Mary
Smith, Capital; Mary Smith, Drawing; and perhaps Current Year's Net Income). See the sample balance
sheet in Part 4.
The stockholders' equity section of a corporation's balance sheet is:

Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income
Treasury Stock
The stockholders' equity section of a corporation's balance sheet is:
Owner's Equity vs. Company's Market Value
Since the asset amounts report the cost of the assets at the time of the transactionor lessthey do not
reflect current fair market values. (For example, computers which had a cost of $100,000 two years ago
may now have a book value of $60,000. However, the current value of the computers might be just
$35,000. An office building purchased by the company 15 years ago at a cost of $400,000 may now have
a book value of $200,000. However, the current value of the building might be $900,000.) Since the
assets are not reported on the balance sheet at their current fair market value, owner's equity appearing
on the balance sheet is not an indication of the fair market value of the company.

Owner's Equity and Temporary Accounts

Revenues, gains, expenses, and losses are income statement accounts. Revenues and gains cause
owner's equity to increase. Expenses and losses cause owner's equity to decrease. If a company
performs a service and increases its assets, owner's equity will increase when the Service
Revenues account is closed to owner's equity at the end of the accounting year.

3.) Classify elements of statement of financial position into current and non-current items?

CURRENT ASSETS FOR THE BALANCE SHEET

Examples of current assets are cash, accounts receivable, and inventory.

Cash: Cash includes accounts such as the companys operating checking account, which the

business uses to receive customer payments and pay business expenses, or an imprest

account, which keeps a fixed amount of cash in it (such as petty cash).

Accounts receivable: This account shows all money customers owe to a business for a

completed sales transaction. For example, Business A sells merchandise to Business B with the

agreement that B pay for the merchandise within 30 business days.

Inventory: Goods available for sale reflect on a merchandisers balance sheet in this account. A

merchandiser is a retail business, like your neighborhood grocery store, that sells to the general

public. For a manufacturing company, a business that makes the items merchandisers sell, this

category also includes the raw materials used to make items.

 Prepaid expenses: Prepaids are any expense the business pays for in advance, such as rent,

insurance, office supplies, postage, travel expense, or advances to employees. They also list as

current assets, as long as the company envisions receiving the benefit of the prepaid items within

12 months of the balance sheet date.

NONCURRENT ASSETS FOR THE BALANCE SHEET

Long-term assets are ones the company reckons it will hold for at least one year. Typical examples of

long-term assets are investments and property, plant, and equipment currently in use by the company in

day-to-day operations.

Fixed assets: This category is the companys property, plant, and equipment. The account

includes long-lived assets, such as a car, land, buildings, office equipment, and computers.

Long-term investments: These investments are assets held by the company, such as bonds,

stocks, or notes.

Intangible assets: These assets lack a physical presence (you cant touch or feel them).

Patents, trademarks, and goodwill classify as noncurrent assets.