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The statement of financial position provides information about the resources and debts of the reporting entity． It enables users of financial statements to evaluate the entity's financial position， in particular whether the business is likely to be unable to pay its debts． The statement of financial position is like a photograph of the financial state of affairs of a business at a specific time．
A statement of financial position comprises those accounts with balances that were not included in the statement of profit or loss． All these accounts that continue to have balances must be assets， capital or liabilities． Because it is these balances that are entered in the statement of financial position， it used to be called the ‘balance sheet’． You should be aware of this： you may meet this term in an examination question or in a textbook—many people still use the old term．
Statements of financial position contain five groups of items， as follows．
We are going to show the assets under two headings， non-current assets and current assets．
·Non-current assets
These are items not specifically bought for resale but to be used in the production or distribution of those goods normally sold by the business． They are utilised to generate economic inflows to the entity． Non-current assets are durable goods that usually last for several years， and are normally kept by a business for more than one accounting year．
Examples of non-current assets are buildings， machinery， motor vehicles， fixtures and fittings． These are tangible assets． The different types are recorded in separate ledger accounts with the balances on each account being disclosed in the statement of financial position．
Non-current assets are listed first in the statement of financial position starting with those the business will keep the longest， down to those which will not be kept so long，For instance：
·Current assets
These are items that are normally kept by a business for less than one accounting year． Indeed， the composition of each type of current asset is usually continually changing． Examples include inventories， accounts receivable， cash in the bank， and cash in hand．
These are listed in increasing order of liquidity—that is， starting with the asset furthest away from being turned into cash， and finishing with cash itself． For instance：
There are two categories of liabilities， current liabilities and non-current liabilities．
·Current liabilities
These are debts owed by a business that are payable within one year （often considerably less） from the date of the statement of financial position．
Examples include bank overdrafts， accounts payable resulting from the purchase on credit of goods for resale．
·Non-current liabilities
These are debts owed by a business that are not due until after one year （often much longer） from the date of the statement of financial position．
Examples include bank loans， loans from other businesses and mortgages．
This refers to the amount of money invested in the business by the owner（ s）． This can take the form of cash introduced or profits not withdrawn．
This is the proprietor's or partners' account with the business． It will start with the balance brought forward from the previous accounting period， to which is added any personal cash introduced into the business and the net profit made by the business in this accounting period．Deducted from the capital account will be amounts drawn from the business and any loss made by the business． The final balance on the capital account should equal the net assets or net liabilities figure． Exhibit 2.1 gives the standard format．
Exhibit 2.1
It is important to note that the statement of financial position shows the balances of the business at one point in time： the statement of financial position date， for example，‘as at 31 December 20×1’． It is like taking a snapshot of the business at one moment in time． On the other hand， the statement of profit or loss account shows the profit／ loss of that business for a period of time （normally a year）， i．e．‘for the year ended 31 December 20×1’．