What is a Statement of Financial Position?
A Statement of Financial Position shows a business's assets, liabilities and owner's equity at a particular date. It follows the accounting equation: Assets = Liabilities + Owner's Equity.
Key idea
Owner's equity = Capital + Net profit − Drawings.
Working capital = Current assets − Current liabilities.
Order of Items
- Non-current assets — premises, machinery, vehicles; shown at cost less accumulated depreciation (net book value).
- Current assets — closing inventory, debtors, prepayments, bank, cash.
- Current liabilities — creditors, accrued expenses, bank overdraft.
- Non-current liabilities — long-term loans.
- Owner's equity — capital plus net profit less drawings.
Example
| Item | RM |
| Vehicle (30,000 − depreciation 6,000) | 24,000 |
| Fixtures | 10,000 |
| Current assets (inventory 6,000 + debtors 8,000 + bank 5,000) | 19,000 |
| Total assets | 53,000 |
| Owner's equity (capital 30,000 + profit 13,500 − drawings 7,500) | 36,000 |
| Loan (non-current) | 10,000 |
| Creditors (current) | 7,000 |
| Total equity + liabilities | 53,000 |
Both sides agree at RM53,000, proving the accounting equation balances.
Order and Use
Assets are usually arranged by durability — non-current assets first, then current assets. Liabilities are split into non-current and current liabilities. This tidy order helps users judge the business's liquidity, that is, its ability to pay short-term debts. Positive working capital shows that current assets are enough to cover current liabilities. The statement may be drawn up in a vertical (report) form or a T-form, though the vertical form is more common today. It is also important to banks and suppliers before granting credit, and to LHDN for tax purposes.
Remember
Accumulated depreciation is deducted from the asset's cost; drawings reduce owner's equity and are not an expense.