Statement of financial position

A full set of financial statements would include the following:
 a statement of financial position;
 a statement of comprehensive income;
 a statement of changes in equity (not in this syllabus);
 a statement of cash flows (not in this syllabus) and
 notes to the financial statements (not in this syllabus).
Those components not in the syllabus are mentioned for completeness only.The statement of financial position and statement of comprehensive income will be described in more detail in later chapters. The remainder of this section will explain the contents and basic structure of the statement of financial position and the statement of comprehensive income.



The statement of financial position
A statement of financial position is a list of the assets and liabilities of an entity as at a particular date. It also shows the equity (capital) of the entity. A statement of financial position (formerly called a balance sheet) reports the financial position of an entity as at a particular date, usually the end of a financial year. The financial position of an entity is shown by its assets, liabilities and equity (owners’ capital).

Assets
An asset is something that an entity owns, a resource that it controls or something that it is owed. (This is not a strictly accurate definition but will do at this point). Assets are presented in the statement of financial position under two main
categories:
 Current assets: assets that are expected to provide economic benefit in the short term.
 Non-current assets: assets that have a long useful life and are expected to provide future economic benefits for the entity over a period of several years.
Example: Current assets
Inventory,cash, trade receivables (money owed by customers who have purchased goods or services on credit).
Example: Non-current assets
Property, machinery, patent rights

Liabilities
A liability is an amount that the entity owes to another party. (This is not a strictly accurate definition but will do at this point).
Liabilities are presented in the statement of financial position under two main
categories:
 Current liabilities: Amounts payable by the company within 12 months
 Non-current liabilities: Amounts not payable within the next 12 months
Example: Liabilities
Trade payables (amounts owed to suppliers for goods purchased)Bank loans

Equity
Equity is the residual interest in the business that belongs to its owner or owners after the liabilities have been deducted from the assets. Equity is sometimes referred to as the ‘net assets’ of the business. (Net assets means assets minus liabilities).
Equity represents the amount the entity ‘owes’ to its owners, and liabilities are the amounts it owes to others. The total assets ‘owned’ are equal to the total amount of equity plus liabilities that it ‘owes’.
This can be represented as the accounting equation.
Formula: Accounting equation
Assets – Liabilities = Equity or Assets = Liabilities + Equity
The statement of financial position is a detailed representation of this equation.

Format of a statement of financial position
A simple statement of financial position is divided into two parts:
 The top half of the statement shows the assets of the business, with noncurrent assets first, and current assets below the non-current assets.
 The lower half of the statement shows equity, followed by liabilities. The liabilities are shown with non-current (long-term) liabilities first, and then current liabilities. The figure for total assets in the top part of the statement must always equal the total of equity plus liabilities in the bottom half.

The statement of financial position is not a statement of value.
The value of a business is determined by the profits that the business is expected to generate using the assets that it owns. There is no way of telling what a business is worth by looking at the financial statements. (Further analysis would be required to arrive at a valuation).