Financial position pertains to the resources owned and controlled by the company (assets), and the claims against them (liabilities and capital).
Hence, if you have a report that presents a company's assets, liabilities and capital, then you are probably looking at a company's balance sheet.
This lesson shows what a Balance Sheet looks like and provides some points you need to know about this financial report.
Balance Sheet Example
Moving on from our previous illustrations, here is a sample balance sheet for Strauss Printing Services, a service type sole proprietorship business. All amounts are assumed and simplified for illustration purposes.
|Strauss Printing Services|
|Statement of Financial Position|
|As of December 31, 2014|
|Prepaid Expenses||4,500||$ 41,500|
|Property, Plant and Equipment||145,000|
|Total Assets||$ 186,500|
|LIABILITIES AND OWNER'S EQUITY|
|Accounts Payable||$ 8,400|
|Rent Payable||8,000||$ 16,400||Non-current Liability:|
|Loans Payable||23,000||Strauss, Capital||147,100||Total Liabilities and Owner's Equity||$ 186,500|
Explanation and Pointers
- A Balance Sheet shows the financial position or condition of the company; thus, it is also called "Statement of Financial Position".
- A typical balance sheet starts with a heading which consists of three lines. The first line presents the name of the company; the second describes the title of the report; and the third states the date of the report.
- Notice that the third line is worded "As of..." Unlike the other components of the financial statements which cover a span of time ("For the period ended.."), the balance sheet presents information as of a certain date (at a specific point in time). In the above example, the contents of the balance sheet pertain to the financial condition of the company on December 31, 2014.
- A balance sheet summarizes the assets, liabilities, and capital of a company. Assets refer to properties owned and controlled by the company. Liabilities are obligations to creditors, lenders, etc. And capital represents the portion left for the owners of the business after all liabilities are paid. For detailed lessons about assets, liabilities and capital, check out the Elements of Accounting.
- Assets and liabilities are classified as either current or non-current. Current assets are properties that will be converted into cash within 12 months or within the operating cycle of the business. Current liabilities are due within 12 months or within the operating cycle. Non-current assets and non-current liabilities are those that do not meet the above qualifications.
- "Total assets" and "total liabilities and capital" should always be equal.
- The capital amount, $147,100 for Strauss, Capital, was actually taken from the Statement of Owner's Equity.
- The balance sheet may be presented in two forms: account form and report form. In account form, assets are presented on the left side while liabilities and capital are presented on the right. In report form, assets are presented first and then followed by liabilities and capital. The example above is presented using the report form.
- Good accounting form suggests that a single line is drawn every time an amount is computed. It signifies that a mathematical operation has been completed. The "total assets" and "total liabilities and capital" amounts are double-ruled.