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Statement of financial position

Statement of financial position (Balance Sheet)

The statement of financial position also known as a Balance Sheet represents the Assets, Liabilities and Equity of a business at a point in time.

For example:

Assets include cash, stock, property, plant or equipment - anything the business owns. Liabilities are what the business owes to outside parties, eg. suppliers, bank or business loans. Equity is the remaining proportion of the owner's financial interest in the business after deducting any liabilities from the total assets in the business.

Reading your Financial Position (Balance Sheet)

When reading your balance sheet, it represents what your business owns and controls (the Assets), what it owes (the Liabilities) and the investment that the owner has contributed (the Equity) at a particular point in time.

The accounting equation is:

accounting equation

Case Study

Paul has created his statement of financial position at startup. It shows that Paul has $9,438 in the bank, he has various property, plant and equipment totalling $3,000 and furniture & fixtures of $400. He has no liabilities and his investment in the business by way of capital is $12,838. You can see that Paul’s total assets equals the total of the liabilities and equity for his business. It is displayed below.

statement of financial position


Activity

Explore this link to gain further knowledge and definition on some of the key elements of a 'statement of financial position'.

Alternatively there is a PDF version of the activity answers in the Downloads area


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This article is from the free online course:

Online Business: Pricing for Success

RMIT University