Learn the steps that we need to follow when we will prepare a SFP (Statement of Financial Position)

1. HOW TO MAKE A
“STATEMENT OF FINANCIAL
POSITION” TUTORIAL

2. Hello! I will teach you how to make a
Statement of Financial Position step
by step. But first, what is Statement
of Financial Position?

3.  The Balance Sheet or the Statement of Financial Position is one of the
major components of financial statements, which include the income
statement, statement of cash flow, statement of changes in equity and
the notes to financial statements.
 It presents the company’s assets, liabilities and equity, which show the
basic accounting equation (assets = liabilities + equity), where total
assets must always be balanced with the sum of the total liabilities and
total equity.

4. Steps to be made before the
preparation of balance sheet
In the accounting cycle, the balance sheet and other
financial statements are prepared after the adjusted
trial balance is done.
(Preparing the balance sheet without doing the
previous steps of the accounting cycle will give the
preparer troubles in coming up a fair balance sheet
statement.)

5. What is trial balance?
A trial balance is an internal accounting statement
prepared to check the accuracy of the company’s
accounting records. As the “trial” on its name
suggests, it is made to check if there are errors
committed during the accounting process, which
involves journalizing and posting entries to the
general or subsidiary ledgers. The trial balance must
be balanced.

6. How to Prepare a Trial
Balance

7. Example of Trial Balance

8. Trial Balance Contains:
 Header – This consists the name of the entity or
company, name of the statement (trial balance), and the
date of the reporting period.


9. Account titles – These are the accounts
shown on your general ledger (e.g., cash,
accounts receivable, et cetera).

10. Ledger folio – This is the reference
number from the ledger accounts.

11. Debit column – The account’s balance in
the ledger when it results to a debit
of balance.

12. Credit column – The account’s balance in
the ledger when it results to a debit amount
of balance.

13. Total – the totals of the amounts in the
debit and in the credit column. The two
should be equal or balanced.

14. Actually, a trial balance is just
like a statement or a summary
of your ledger account
balances.

15. Fill up the account title column
To begin with your trial balance preparation, fill in your
ledger accounts in the “account title” column according to
the following order: asset, liability, equity, income, and
expense.
(If you’re maintaining a chart of accounts, you can also
base your account titles on that chart. Remember to be
consistent in using your account titles.)

16. Post the accounts’ balances
The debit and credit columns in the trial balance reflect the
balance amounts of the accounts in the ledgers. To fill up
the debit or credit columns, just extract the balance of the
corresponding account from the ledger.

17. Balance the totals of your debit and credit
columns
After posting the ledger balances for all your accounts in
the trial balance, it’s time to compute and foot the total
of the debit column to the total of the credit column. The
two totals must be equal
(If they will result in different amounts, there must be an
error in your posting. Hence, you should review your
process to make sure that you have correctly reflected the
ledger balances to the trial balance. Once they become
equal, you can already have your trial balance.)

18. trial balance prepared at the end of accounting period to
check errors in the accounting cycles, which include
identifying transactions, analyzing them, recording journal
entries, and posting them to the ledgers.

19. And now we will proceed to next
topic which is Adjusted Trial Balance

20. In my previous topic titled “how to prepare a trial
balance”, I have discussed the preparation, purpose,
parts, and other important things we should know
about the trial balance.

21.  I have also shown the following sample of an
unadjusted trial balance as our example.

22. There might be other events that need adjustments.
Adjusting entries may include accrued revenues, accrued
expenses, unearned income, prepared expenses,
depreciation, change in accounting estimate, and prior
period errors.

23. Adjusting entries are recorded in the general journal just
like other regular transactions. They are then posted to
the ledger just like other journal entries to reflect the
adjustments and correct their balances.

24. To prepare an adjusted trial balance, you need to reflect
those adjusting entries to adjust the account titles’
balances shown in the trial balance. To illustrate, let’s take a
look at the following examples of adjusting journal entries
from our previous post (debits are shown in the right;
credits are in the left).

25.  AJE #1
Depreciation expense P 1,667
Accumulated depreciation P 1,667
To record depreciation expense for the month of December
(P100,000/5years/12months)

26.  AJE #2
Internet and communication expense P4,000
Accrued expense P4,000
To record Internet and communication accrued as of December 31, 2011

27.  AJE #3
Water and power expense P5,000
Accrued expense P5,000
To record water and power expense accrued as of the end of accounting period


28.  AJE#4
Computer supplies expense P2,000
Unused computer supplies P2,000
To correct balance of unused computer supplies as of December 31, 2011 (P47,000
45,000 = P2,000)

29.  AJE#5
Cash P50,000
Accounts receivable 60,000
Internet service income P60,000
Printing service income 50,000
To correct erroneous recording of Internet service income on account, reflecting
P60,000 that was erroneously omitted (P66,000 – 6,000 = 60,000) and to record
omitted P50,000 printing service income on cash.


30. AJE#6
Interest expense P844
Accrued expense P844
To accrue interest expense for 19 days – Dec 12- Dec 31 [(P100,000×16%/360)x19days=P844.44]

31.  AJE#7
Prepaid rent P15,000
Cash P15,000
To record the unexpired rental fees paid (January to March with P5,000 each month).

32.  AJE#8
Insurance expense P1,000
Prepaid insurance 11,000
Cash P
To record payment of insurance and the corresponding expense for the month of
December (P12,000 x 1/12 = P1,000)

33.  AJE#9
Taxes and licenses P5,000
Accrued expense P5,000
To accrue taxes and licenses as of December 31, 2011.


34.  AJE#10
Income tax expense P75
Income tax payable P75
To record 2011 income tax due and payable

35. The adjusting entries are recorded in the
general journal and then posted in the
ledgers.

36. The debit and credit entries are entered in the
adjustments columns. The AJE numbers are also
indicated to facilitate referencing. The adjusted trial
balance will help us in the preparation of our
balance sheet (statement of financial position) and
income statement.

37. And now I’ll going to discuss about the
preparation of Balance Sheet (Statement of
Financial Position)


38. How to prepare a balance sheet from the
adjusted trial balance
Once the trial balance is adjusted and updated to
correct errors and other adjustments, we can now
prepare the balance sheet and income statement.
The following are the simple steps you need to
know in preparing a simple balance sheet:

39. 1. Start with the heading
The heading includes the name of entity (individual or
company), name of the statement (balance sheet), and
the reporting period (ex. as of December 31, 2011).

40. 2. Present your assets
 Classify you assets into current and noncurrent assets. Current assets are
cash; cash equivalent; assets held for collection, sale, or consumption
within the entity’s normal operating cycle; or assets held for trading within
the next 12 months. The rest are considered noncurrent assets. From our
adjusted trial balance, our current assets include cash, accounts
receivables and prepaid expenses. Take note that we have grouped the
prepaid rent (P15,000), prepaid insurance (P11,000) and unused computer
supplies (P45,000) into one account, that is, prepaid expenses totaling P
71,000. On the other hand, our noncurrent assets only consist of
computer equipment and its accumulated depreciation. This results to a
net carrying amount of P98,333 for the computer equipment.

42. 3. Present your liabilities
After we’re done with the total assets, next are
the liabilities. Liabilities should also be classified
as current and noncurrent. But in our example,
we only have current liabilities. Our current
liabilities include accrued expenses, loans, and
income tax payable. After presenting our total
assets and liabilities, our balance sheet already
looks like this.

44. 4. Add the owner’s equity
 The balance sheet is an equation of “Assets = liabilities + equity”.
Thus, we need to add the owner’s equity in the “liabilities and
equity” section of our balance sheet. The owner’s equity
presented may only show the ending balance, that is, the ending
balance amount shown in the statement of changes in owner’s
equity. This amount is already the result after adjusting the
investments, withdrawals, net income (loss) for the year, and
other adjustments from the beginning balance of the owner’s
equity. After, presenting the owner’s equity, our balance sheet will
already look like this.

46. Note that the “total assets” and the “total liabilities and
owner’s equity” must be balanced. Also remember that
this is only an example of a balance sheet for a single
proprietorship business. Other forms of businesses, such
as partnership and corporation, may have different
presentation in the equity section of the balance sheet.

47. We’re done! Thank you