Statement of Financial Position (SFP) – Lecture Review

20 Question-and-Answer flashcards covering definitions, classifications, and examples related to the Statement of Financial Position for a sole proprietorship.

What financial statement offers a snapshot of a business’s financial health at a specific point in time?

The Statement of Financial Position (SFP).

Which fundamental equation underpins the Statement of Financial Position?

Assets = Liabilities + Owner’s Equity.

What are the three main sections found in every Statement of Financial Position?

Assets, Liabilities, and Owner’s Equity.

In accounting terms, how are assets defined?

Resources controlled by the entity as a result of past events from which future economic benefits are expected to flow to the entity.

How are liabilities defined in the context of an SFP?

Present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.

What is Owner’s Equity in a single proprietorship?

The residual interest in the assets of the entity after deducting all liabilities, often labeled as “Owner, Capital.”

What distinguishes Current Assets from Non-Current Assets?

Current Assets are expected to be converted to cash, sold, or consumed within one year (or the operating cycle); Non-Current Assets provide benefits for more than one year and are not held for sale in ordinary operations.

Give four common examples of Current Assets.

Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expenses (also Supplies).

What are Property, Plant, and Equipment (PPE) classified as on the SFP?

Non-Current Assets (or Fixed Assets), usually presented at cost less accumulated depreciation.

How is a Long-Term Investment categorized on the Statement of Financial Position?

As a Non-Current Asset because it is intended to be held for more than one year.

When are liabilities classified as Current Liabilities?

When they are due to be settled within one year or within the operating cycle, whichever is longer.

List four typical Current Liabilities.

Accounts Payable, Salaries Payable, Utilities Payable, Unearned Revenue (also Short-Term Notes Payable).

What defines a Non-Current (Long-Term) Liability?

An obligation that is not due for settlement within one year.

Provide three examples of Non-Current Liabilities.

Long-Term Notes Payable, Mortgage Payable, and Loans Payable due beyond one year.

What formula is used to compute the ending balance of Owner’s Capital?

Owner, Capital (Ending) = Owner, Capital (Beginning) + Net Income (or - Net Loss) - Owner’s Withdrawals + Additional Investments.

Where is the ending balance of Owner’s Capital reported?

In the Owner’s Equity section of the Statement of Financial Position.

Under which SFP category would ‘Unearned Revenue’ appear?

Current Liabilities, because it represents cash received for goods or services not yet delivered.

What type of asset is ‘Supplies’ and why?

A Current Asset, as it is a consumable item expected to be used within one year.

Why is liquidity an important basis for asset classification on the SFP?

Because it indicates how quickly assets can be converted into cash to meet short-term obligations.

How are PPE items (e.g., machinery) typically presented on the Statement of Financial Position?

At historical cost less accumulated depreciation, within the Non-Current Assets section.