Fabm 2 Notes

FUNDAMENTALS OF ACCOUNTANCY, Allowance for Doubtful Accounts is a
BUSINESS, AND MANAGEMENT 2 contra asset to Accounts Receivable. This

represents the estimated amount that the
STATEMENT OF FINANCIAL POSITION company may not be able to collect from
(SFP) delinquent customers.
Accumulated Depreciation is a
contra asset to the company’s Property,
STATEMENT OF FINANCIAL POSITION Plant and Equipment. This account
– Also known as the balance sheet.
represents the total amount of depreciation
This statement includes the amounts of the
booked against the fixed assets of the
company’s total assets, liabilities, and
company.
owner’s equity which in totality provides the
condition of the company on a specific date.
(Haddock, Price, & Farina, 2012)
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.
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.
Differentiate the Report Form and Current Assets are arranged based on
Account Form: which asset can be realized first (liquidity).
Current assets and current liabilities are also
called short term assets and shot term
Report Form liabilities.
– A form of the SFP that shows asset
accounts first and then liabilities and
owner’s equity accounts after, (Haddock, Noncurrent Assets
Price, & Farina, 2012). The balance sheet – Assets that cannot be realized
shown earlier is in report form. (collected, sold, used up) one year after
yearend date.
Examples include Property, Plant
Account Form and Equipment (equipment, furniture,
– A form of the SFP that shows assets
building, land), Long Term investments,
on the left side and liabilities and owner’s
Intangible Assets etc.
equity on the right side just like the debit and
credit balances of an account. (Haddock,
Price, & Farina, 2012) Noncurrent Liabilities
a. Emphasize that the two are only formats – Liabilities that do not fall due (paid,
and will yield the same amount of total recognized as revenue) within one
assets, liabilities and equity year after year-end date. Examples include
b. Emphasize that assets should always be Loans Payable, Mortgage Payable, etc.
equal to liabilities and equity Noncurrent assets and noncurrent
liabilities are also called long term assets and
long-term liabilities.
Group accounts under Current Assets,
Noncurrent Assets, Current Liabilities, Difference of the Statement of
Noncurrent Liabilities Financial Position of a Service
and Owner’s Equity: Company and of a Merchandising
Company
Current Assets - The main difference of the
– Assets that can be realized
Statements of the two types of business lies
(collected, sold, used up) one year after year-
on the inventory account.
end date.
- A service company has supplies
Examples include Cash, Accounts
inventory classified under the current assets
Receivable, Merchandise Inventory, Prepaid
of the company. While a merchandising
Expense, etc.
company also has supplies, inventory
classified under the current assets of the
Current Liabilities company, the business has another
– Liabilities that fall due (paid, inventory account under its current assets
recognized as revenue) within one year after which is the
yearend date. Merchandise Inventory, Ending.
Examples include Notes Payable,
Accounts Payable, Accrued Expenses
(example: Utilities Payable), Unearned
Income, etc.
The different parts of the Statement a. Heading
of Financial Position i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on
the wording – “as of”)
b. Sample of a Report Form SFP – Refer to
the one above
c. Sample of an Account Form SFP

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FUNDAMENTALS OF ACCOUNTANCY, Allowance for Doubtful Accounts is a

BUSINESS, AND MANAGEMENT 2 contra asset to Accounts Receivable. This

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