The Accounting Student

The Statement of Financial Position Part 1

The statement of financial position (International Terminology) otherwise known as the Balance sheet in the UK accounting terminology is a snapshot of your business at a specific date/time (usually the accounting year end¹)

¹Accounting Year End: This is the given time at which the accounting books are closed.

The statement of financial Position revolves around 1 main accounting formula, and trust me, knowing it will help you a lot. So here it is:

Assets² = Capital³ (Proprietor’s Capital) + Liabilities⁴

²Asset: In simplest terms, an asset are things a business owns e.g machines, cars etc

³Capital: This is money put in by the owner of the business at the start or during the course of the business’ life.

⁴Liability (Plural-ies): In simple terms too, a liability are things a business owes to 3^rd parties e.g. suppliers etc

So basically the above formula is what makes of the Statement of Financial Position (SFP). This formula can be rearranged in various manners, but they will still mean the same. Here are examples of how you may see this formula

A = C + L
C = A – L
L = A – C

They all mean the same, they are just different ways of playing around with the + and – signs.

I will show you how the format of the SFP looks like so that you may have a feel on how the accounting formula is put into use:

Basic SFP Pro-forma

Assets
Non-Current Assets
Plant	x
Property	x
Equipment	x
Machinery	x	xx
Current Assets
Receivables	x
Cash at bank	x
Cash in hand	x	xx
		xx
Capital
Capital Account
Balance at start of year	x
Plus Net Profit/Less Net Loss	x
Plus Increase in Capital	x
Less Drawings	x	xx
Liabilities
Non-Current Liabilities
Loan (more than 1 year)	x
Current Liabilites
Payables	x	xx
		xx

Do not be scared by the names you see in the above pro-forma, in the next post I will detail out all what they are and how they arise.

But this are the general stuffs you will find in an SFP, mind me, there are more to this, but this are the basics.

The Pro-forma above used the Accounting Formula :

Assets = Liabilities + Capital

That is why I highlighted the two blue XX’s as they have got to balance i.e have the same value.

This pro-forma can be rearranged using the Accounting formula in which ever way you like but take note:

Whatever way you choose, they MUST BALANCE!

 

 

Incoming search terms:

• statement of financial position pro forma (1)
• statement of financial position template acca (1)