URDANETA CITY
UNIVERSITY COLLEGE OF BUSINESS MANAGEMENT
Owned and operated by the City Government of Urdaneta AND ACCOUNTANCY
Lesson 3: Preparation and Interpretation of the Statement of Financial Position
What is the Statement of Financial Position?
The statement of financial position is another term for the balance sheet. The statement lists the assets, liabilities, and
equity of an organization as of the report date. As such, it provides a snapshot of the financial condition of a business
as of a specific date. It is one of the financial statements, and so is commonly presented alongside the income
statement and statement of cash flows.
How to Use the Statement of Financial Position
The information on the statement of financial position can be used for a number of financial analyses, such as
comparing debt to equity or comparing current assets to current liabilities. These analyses are typically presented on a
trend line, so that you can detect any changes in the financial position of the reporting entity over time.
Format of the Statement of Financial Position
The format of the statement of financial position follows the basic accounting equation, which states that:
Assets = Liabilities + Equity
This means that all asset line items are presented first, with a total that matches the totals for liabilities and equity,
which are presented next.
Contents of the Statement of Financial Position
Common line items in the report are noted below.
Assets
Cash
Accounts receivable
Inventory
Fixed assets
Other assets
Liabilities
Accounts payable
Accrued expenses
Sales tax liability
Income taxes payable
Debt
Equity
Common stock
Additional paid-in capital
Retained earnings
When is the Statement of Financial Position is Used
The statement of financial position is most commonly issued when a business is operating under a double entry
accounting system, since this approach provides for ongoing updates to asset, liability, and equity accounts. If an entity
is instead using a single-entry accounting system, there is no easy way to construct the statement, which is usually
compiled manually. In addition, the statement provides more meaningful information when it is prepared using the
basic accounting principles mandated by the accounting frameworks, such as generally accepted accounting principles
or international financial reporting standards.
Key Highlights
A statement of financial position or balance sheet gives a complete overview of the company’s financial
health by evaluating its assets and liabilities.
It is calculated yearly and should be balanced, which means both assets and liabilities or shareholders’ equity
value should be the same.
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URDANETA CITY
UNIVERSITY COLLEGE OF BUSINESS MANAGEMENT
Owned and operated by the City Government of Urdaneta AND ACCOUNTANCY
It helps to evaluate and analyze the business’s liquidity, performance, and cash flow.
Its primary purpose is to represent accurate and vital financial information about any company’s Equity,
assets, and liabilities.
It can also be useful for the Management of the company to review and track the financial stability of the
company and find the scope for improvement.
Let’s take the example of Walmart Inc. The company’s balance sheet can be evaluated as the statement of
financial position for the financial year ending on December 31, 2022.
(075) 600 - 1507
San Vicente West, Urdaneta City, Pangasinan
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URDANETA CITY
UNIVERSITY COLLEGE OF BUSINESS MANAGEMENT
Owned and operated by the City Government of Urdaneta AND ACCOUNTANCY
(Image Source: Walmart’s Annual Report 2022)
We can draw the following conclusion from the above balance sheet:
The company’s assets worth $244,860 are what the company owns.
The total liabilities and equity worth $244,860 are the sources of income that the company has used to fund
its assets.
Thus, with the above information, we can conclude that the company’s balance sheet is balanced as both the
factors, such as assets and liabilities or shareholder’s equity, are the same.
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San Vicente West, Urdaneta City, Pangasinan
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