Lesson 1.

1: Statement of Financial Position

Introduction to Statement of Financial Position
A Statement of Financial Position is a document that records the company's resources through its assets
while also providing records of its debts and other liabilities and the interest of the company's owners in the
business. It has a lot of different uses inside and outside of a company, but it is generally used to know how a
business is positioned financially. From this financial statement, users of accounting information can make
decisions concerning a business’s liquidity and solvency.

Statement of Financial Position
The Statement of Financial Position shows a
business's financial condition as of a given period. It
shows what a business owns and what it owes to its
creditors and owners. Hence, the Statement of
Financial Position records the assets, liabilities, and
equity of a company. Through this financial
statement, users of accounting information can
assess a company's ability to pay its short-term
(liquidity) and long-term debts (solvency).
than a year, such as land, equipment, building, and
the like.
Liabilities
Liabilities are obligations or debts of a
business to other entities, individuals, or institutions.
There are two types of liabilities, namely,
current/short-term liabilities and non-current/long-
term liabilities. Current liabilities are due to be paid
within the next 12 months. Some examples are
accounts payable, short-term loans, interest
payable, and the like. Non-current liabilities, on the
other hand, are debts that will mature beyond the
one-year period, such as long-term loans,
mortgages, and bonds.

Equity
Equity is the total amount of the capital
invested by the owner into a business, affected by
withdrawals made by the owner and the net
income or net loss that the business entity gained or
incurred during its operations. It is the residual
interest after liabilities are deducted from the assets.
Through equity, a company can secure loans from
financial institutions. Banks and creditors compare a
business's equity to its liabilities and determine if a
business is running through the owner's capital or
debts.

In a partnership, the equity section lists the

capital balances of each of the partners. While in
corporations, the equity section contains the shares
of stocks and the retained earnings. The shares of
stocks can be common stock or preferred stock,
and the retained earnings are the accumulated
profits of the corporation during its operations.
The Statement of Financial Position shows the
company’s assets, liabilities, and owner’s equity.

Elements of Statement of Financial Position

The Statement of Financial Position follows
the formula of the accounting equation, Assets =
Liabilities + Equity. For this reason, Assets are listed
first in the Statement of Financial Position, followed
by Liabilities and Equity.

Assets
Assets are the things that a company owns.
They are used to generate revenue by producing
goods or offering services. Assets are divided into
two categories: current and noncurrent assets.
Current assets are easy to liquidate and can be
used within a year. Examples of current assets are
cash, accounts receivable, cash equivalents, and
inventories. In contrast, non-current assets are
difficult to dispose of and can be used for more