STATEMENT OF FINANCIAL

POSITION
Statement of Financial Position, also referred to as the
balance sheet:
•1. Reports assets, liabilities, and equity at a specific date
•2. Provides information about resources, obligations to creditors, and equity
in net resources.
•3. Helps in predicting amounts, timing, and uncertainty of future cash flows.
 • Computing rates of return.

USEFULNESS
• Evaluating capital structure.
• Assess risk and future cash flows.
• Analyze company’s:
 Liquidity
 Solvency
 Financial flexibility
 • Financial Position (Cont’d)
 Current assets: Assets that are expected to be realised in cash or
used up within the next 12 months.

Classification
 Current assets include cash on hand, cash at bank, short-term
investments, inventory, debtors.
 Non-current assets: Assets that are acquired with the intention of
controlling them for a period of time greater than 12 months.
 Non-current assets include property, equipment, machinery,
furniture, vehicles, long-term investments.
• Financial Position (Cont’d)
 Current liabilities: obligations that will be satisfied within the
next 12 months.
 Current liabilities include bank overdrafts, short-term loans,
creditors.
 Non-current liabilities: obligations that are deferred over a period
greater than 12 months.
 Non-current liabilities: include long-term loans.
 • Most assets and liabilities are
reported at historical cost.
Limitations • Use of judgments and
estimates.
• Many items of financial
value are omitted.
 Statement of Financial Position
•  The accounting equation is the basis of the
statement of financial position.
•  Assets = Liabilities + Owner’s equity
•  T-form statement of financial position
•  Narrative form statement of financial position
 City Traders: Statement of financial position as at
30 June 2005

Assets

liabilities
Cash at bank 3 000 Creditors 5 000

T-form Debtors

Stock
5 000

20 000
Loan 10 000

15 000

statement Office equipment 4 000 Owner’s equity  

of Vehicle 18 000 Capital – K.

Wilson
Total equities &

financial 35 000

position
Total assets $50 000 liabilities $50 000