Elements of the Statement of Financial Position
What is a Statement of Financial Position?
A Statement of Financial Position, or balance sheet, shows an entity's financial condition at a specific time. It includes assets, liabilities, and equity. Analysts use it to assess liquidity, solvency, and profitability.
1. Assets
Assets are economic resources controlled by the entity, expected to bring future economic benefits.
Current Assets
According to PAS 1, current assets are expected to be realized or used within 12 months or the operating cycle.
- Cash or cash equivalents (unless restricted)
- Primarily for trading
- Expected to be realized within 12 months
- Sold or consumed during the operating cycle
Examples: Cash, Accounts Receivable, Inventories, Prepaid Expenses.
Non-Current Assets
Non-current assets are those not classified as current.
Examples: Property, Plant & Equipment, Intangibles, Long-term Investments.
2. Liabilities
Liabilities are obligations to transfer resources, resulting from past events.
Current Liabilities
Current liabilities are expected to be settled within 12 months or the operating cycle.
- Expected to settle within the operating cycle
- Primarily for trading
- Due within 12 months
- No unconditional right to defer for more than 12 months
Examples: Accounts Payable, Accrued Liabilities, Unearned Revenues.
Non-Current Liabilities
Non-current liabilities are obligations not due within 12 months.
Examples: Long-term Debt, Mortgage Payable, Bonds Payable.
3. Equity
Equity is the residual interest in the entity's assets after deducting liabilities.
- Capital: Original and additional owner investments.
- Withdrawals: When the owner withdraws assets.
- Income Summary: Temporary account to close income and expenses at period-end.
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