Statement of financial

position
Balance sheet lists the assets, liabilities and
equity of an organization as of the report
date.
Formula for balance sheet:
Assets = Liabilities and Equity
Components of a
balance sheet
 Asset
resources that are owned by the company acquired or generated with equity fund
or outside borrowings use to create goods or provide services and generate
revenues. divided into current and non-current assets based on whether they are
expected to be realized within a period of twelve months from the reporting
period or not
 Current Asset
Current assets are the resources that a business owns and expects to use or sell
within a year. Current assets are important to a business because by converting
them to cash they allow it to pay its day-to-day operating expenses, bills and
loan payments - its current liabilities.
 Cash
the most liquid asset of an entity and thus is important for the short-term
solvency of the company. The cash balance shown under current assets is the
balance available with the business. This cash can be promptly used to meet its
day-to-day expenses. It typically includes coins, currencies, funds on deposit
with bank, cheques and money order
 Cash equivalents
the result of cash invested by the companies in very short-term, interest-earning
financial instruments. These instruments are highly liquid, secure and can be
easily converted into cash usually within 90 days
 Stock or inventory
Inventories are the sum of items that are either:
● Stocked for the purpose of sale in the normal course of business (finished
goods)
● In the production process and would eventually be sold (work-in-progress)
● Shortly be consumed in the manufacturing of goods that would be sold
eventually (raw material)
 Accounts receivable
the amounts that a company’s customers owe to it for the goods and services supplied by
the company on credit. The accounts receivables are presented in the balance sheet at
net realizable value. These amounts are determined after considering the bad debt
expense. Increase in the bad debt expense leads to increase in the allowance for
doubtful accounts.
 Marketable securities
the investments made by the company. These investments are both easily marketable as
well as expected to be converted into cash within a year. These include treasury bills,
notes, bonds and equity securities.
 Prepaid expenses
refer to the operating costs of a business that have been paid in advance. Thus, cash
reduces in the balance sheet at the time when such expenses are paid at the beginning
of the accounting period. Simultaneously, a current asset of the same amount is created
in the balance sheet by the name of prepaid expenses.The examples of prepaid expenses
include prepaid rent, prepaid insurance etc.
 Other liquid assets
Other current assets include deferred assets. These assets are created when the tax
payable exceeds the amount of income tax expense recognized by the business in its
income statement. This can happen in situations where expenses or losses are shown in
the income statement before they are actually tax deductible orrevenues or gains are
taxable before they are shown in the income statement. Thus, this deferred tax asset gets
reversed over a period of time.
It gets reversed at a time when the expense is deducted for tax purposes. Or revenue or
gain is recognized in the income statement.
 non-current assets
Non-current assets are assets and property owned by a business that are not easily
converted to cash within a year. They may also be called long-term assets. Non-current
assets are for long-term use by the business and are expected to help generate income.
 tangible f ixed assets
physical property - it can be touched. The term is most commonly associated with fixed
assets, such as land, buildings, machinery, vehicles, and other equipment. It is not used
to describe shorter-term assets, such as inventory, since these items are intended for
sale or conversion to cash.
 intangible fixed assets
assets that have no physical substance. Organizations that have invested large sums to
establish brands may find that the value of their intangible assets greatly exceeds the
value of their physical assets. Intangible assets include trademarks, copyrights, and
patents.
 goodwill
the excess of the purchase price paid for an acquired entity and the amount of the price
not assigned to acquired assets and liabilities. It arises when an acquirer pays a high
price to acquire another business. This asset only arises from an acquisition; it cannot be
generated internally. Goodwill is an intangible asset, and so is listed within the
long-term assets section of the acquirer's balance sheet.
 long-term investment
an account on the asset side of a company's balance sheet that represents the company's
investments, including stocks, bonds, real estate, and cash. Long-term investments are
assets that a company intends to hold for more than a year.
 natural resources
assets that come from the earth. Examples of natural resources include fossil fuels and
timber.
 liabilities
legally binding obligations that are payable to another person or entity. Settlement of a
liability can be accomplished through the transfer of money, goods, or services
 current liabilities
Current liabilities are a company's short-term financial obligations that are due within
one year or within a normal operating cycle. An operating cycle, also referred to as the
cash conversion cycle, is the time it takes a company to purchase inventory and convert
it to cash from sales.
 accounts payable
the opposite of accounts receivable, which is the money owed to a company. Accounts
payable is what the company owes to others. This increases when a company receives a
product or service before it pays for it
 accrued payroll
This item on the balance sheet shows money owed to employees, which the company has
not yet paid, including:
-Salaries
-Wages
-Bonuses
-Other forms of compensation
 short-term and current long term debt
These current liabilities are sometimes referred to as "notes payable." They are the most
important items under the current liabilities section of the balance sheet. Most of the
time, notes payable are the payments on a company's loans that are due in the next 12
months.
 other current liabilities
In some cases, they will be lumped together under the title "other current
liabilities." You may also see entries for:
● Dividends payable: The amount of money that has been approved by the board of
directors to be distributed to shareholders in the future.
● Interest payable: Money that must be paid in interest tlenders.
● Income taxes payable: Money that will have to be paid to the government.
 consumer deposits
Consumer deposits show the amount that clients have deposited in a bank. This money is
a liability rather than an asset. That's because, theoretically, all of the account holders
could withdraw all of their funds at the same time. Their money doesn't belong to the
bank.
 non-curent labilities
Non-current liabilities are the debts a business owes, but isn't due to pay for at least 12
months. They're also called long-term liabilities. Although payment may not be due
within a year, it's important a business doesn't overlook its non-current liabilities.
 deffered revenue
-The obligation to provide products/services in the future after the upfront payment (i.e.
prepayment) by customers — can be either current or non- current. –payments received by
customers for products or services no yet provided (i.e. “unearned” revenue).
 deferred tax liabilities
the amount of taxes a company owes within a specific period but pays later. Depending
on current transactions that benefit from tax deferral, a business may pay higher taxes
later.
 long-term lease obligations
The lease obligations refer to contractual agreements where a company can lease its
fixed assets (i.e. PP&E) for a specified period in exchange for regular payments.
 long-term debt
The non-current portion of a debt financing obligation that is not coming due for more
than twelve months.
● Bonds payable - represents a long-term agreement where a lender lends money
so a borrower can complete a project that requires capital financing.
● Mortgage payable - a long-term liability representing the amount a property
owner has to pay for a loan regarding the security of a home or commercial
building
● Post-employment benefits-represents the benefits an employee and their family
might receive after the employee retires from their position
 long-term debt
The non-current portion of a debt financing obligation that is not coming due for more
than twelve months.
● Debentures- a long-term, unsecured bond that the government often issues, which
limits the risk of offering the loan. There's no collateral or security backing, so
debentures depend on the issuer's reputation, creditworthiness and validity.
● Deferred Compensation- an addition to an employee's regular compensation that
is set aside to be paid at a later date. There are many forms of deferred
compensation, including retirement plans, pension plans, and stock- option plans.
components of equity
 outstanding shares
amount of company stock that has been sold to investors and not repurchased by the
company. Represents the total amount of stock the company has issued to public
investors, company officers, and company insiders, including restricted shares.
 dividends
the distribution of profits to shareholders, usually by common or preferred stock. In organizations
that are corporations, dividends are proportionate to partnership
distributions. On a balance sheet, dividends decrease a company's equity.
● common stock - records the amount of money investors gave to a corporation as capital
investment to have ownership of the company, and it usually reflects a par value of the
stock. Par value to the investor is sometimes smaller, so an account balance might be
minimal.
● preferred stock- similar to common stock, this also records the amount of money
investors gave to have partial ownership of a company. Many entities rarely issue this
type of stock, because although you seldom have voting rights with preferred stock
shares, you earn a guaranteed cumulative dividend. Dividends not paid annually usually
accumulate until paid.
 additional paid in capital
another term for contributed surplus. It's how much money investors paid over par value
stock sold to them. An account balance for additional paid-in capital is often large.
 retained earnings
the amount of revenue a business or organization earns to date minus the total amount
of distributions to shareholders from dividends paid.
 treasury stocks
contra-equity accounts, represents the amount paid to investors from buying back their
stock.
 other comprehensive income
company's change in equity during specific time frames, and it often comes from
events and transactions that have unrealized cash gain or loss.Treasury stocks and bonds
not yet matured are examples of other comprehensive income. Investors might use total
OCI when assessing the future outlook of a company and its net cash flow
 owner’s distribution
as a partnership equity account, an owner's distribution is how much money an owner
gets or withdraws out of the business based on how much profit a company generate
 owner’s capital
another partnership equity account, owner or member capital, represents the contributed,
invested and profit capital in a business. Carrying a balance on this type of account
increases company equity. Most often, partnershipsor sole proprietorship use this type of
equity account.