What the statement shows
A statement of financial position (once called a balance sheet) is a snapshot of what a business owns and owes at a single moment in time. It lists the firm's assets, its liabilities and the capital (equity) put in by the owners.
Key idea
The accounting equation always balances: Assets = Liabilities + Capital (equity). Total assets equal the total of everything used to fund them.
Assets and liabilities
- Non-current (fixed) assets — kept for more than a year, such as buildings, machinery and vehicles.
- Current assets — expected to turn into cash within a year, such as inventory, trade receivables (money owed by customers) and cash.
- Current liabilities — owed within a year, such as an overdraft and trade payables (money owed to suppliers).
- Non-current liabilities — owed after more than a year, such as a long-term bank loan.
Example
A shop owns non-current assets of RM60000 and current assets of RM20000, so total assets are RM80000. If liabilities are RM30000, then capital = 80000 − 30000 = RM50000, keeping the equation balanced.
Why it is useful
Owners see the firm's overall strength; lenders judge whether there are enough assets to cover debts. Comparing current assets with current liabilities shows whether the business can meet short-term debts (its working capital).
Remember
- Assets = Liabilities + Capital.
- Non-current items last over a year; current items are within a year.
- It is a snapshot at one date, unlike the income statement which covers a period.