Statements of Financial Position

Statements of Financial Position provide a summary of the financial balances of a business at a specific point in time. These are also known as Balance Sheets.
The primary components are assets, liabilities, and shareholders’ equity. The statement is used to show what a business owns (assets), what it owes (liabilities), and the value of the owners’ investment in the business (equity).

Assets

Assets are resources owned by a business from which future economic benefits are expected. They can be owned, controlled and are used by the business in its operations.
Assets are divided into two main categories: current assets and non-current assets.
Current assets are short-term assets which can be converted into cash within one year. These include cash, stock, and debtors.
Non-current assets, also known as fixed assets, are long-term investments which cannot be converted into cash easily. These include property, plant, and equipment.

Liabilities

Liabilities are financial obligations of the business. In other words, they represent amounts owed to others.
Like assets, liabilities are also divided into current liabilities and non-current liabilities.
Current liabilities are short-term financial obligations which need to be paid within one year. These include creditors, bank overdrafts, and short-term loans.
Non-current liabilities are long-term obligations which need to be paid over a period exceeding one year. These include long-term loans and mortgages.

Shareholders’ Equity

Shareholders’ equity represents the residual interest in the assets of a business after deducting liabilities. It includes share capital, retained earnings, and other financial elements.
Share capital is the money that shareholders invest in a business.
Retained earnings are the profits that a business has earned but has not paid out to shareholders as dividends. It’s reinvested back into the business.

These elements must be balanced in the Statement of Financial Position following the equation: Assets = Liabilities + Shareholders’ Equity. This means that the value of a company’s assets should be equal to the sum of its liabilities and equity.