STATEMENT OF FINANCIAL POSITION: STRUCTURE AND EXAMPLE - DUDAS - 2025

The statement of financial position of a company, also called balance sheet, is a report that summarizes the economic and financial situation of the organization at a given time. This report of financial position is one of the parts of the financial statements or annual accounts of the company.

Along with this statement, the income statement (or profit and loss), the statement of changes in equity, the statement of cash flows and the report are taken into account. The balance sheet is made up of three blocks: assets, liabilities and equity, and they are obtained through strict accounting of the company's movements.

The asset refers to all the elements that are owned by the company and that bring it money or will do so in the future, such as buildings, stocks or computer equipment. Instead, the liability is the set of obligations that the company has in relation to other entities.

That is, liabilities are values ​​that must be paid in the future, such as loans, credits, or purchase advances. As for net worth, it is the difference between assets and liabilities, and it is the capital contributions of the company's shareholders plus undistributed profits.

Structure

The structure of the statement of financial position is divided into two blocks: one with assets, and the other with liabilities and equity. Both blocks must add the same amount, since the assets must be financed by the net worth or by the liabilities.

Active

Assets are all goods, services or rights, tangible or intangible, that produce value for the company.

These assets appear on the balance sheet with their economic value, and divided into two large groups: fixed or non-current assets and current or current assets.

Fixed asset

Fixed or non-current assets are those assets and rights that remain in the company for more than one year. These might be:

- Property, plant and equipment, such as buildings, equipment or furniture.

- Intangible assets, such as industrial properties, computer applications or transfer rights.

Current or current assets

They are assets that become liquid in less than a year; that is, they are converted into money in less than twelve months. These might be:

- Stock, as finished products in stock.

- Short-term collection rights.

- Cash.

passive

The liability refers to all future financial obligations on the part of the company. They are part of the financing of the company along with the net worth. Liabilities can be divided into:

Non-current liabilities

They are those that have to be paid within a period of more than one year, thus maintaining more than one fiscal year with the company. An example could be a loan to be paid in 5 years.

Current or current liabilities

They are those that have to be paid during the current fiscal year; that is, in less than a year. A short-term loan could be an example of a current or current liability.

Net worth

They are all the elements corresponding to the organization's own financing. Therefore, the sum of this and the liability must give the total financing of the company, which must be equal to the sum of the total assets.

For the most part it refers to own funds, although you can also point out some accounting adjustments. The undistributed profits of the company must also go into the net worth. In this way, equity is a great indicator of the value of the company.

How to make a statement of financial position?

The balance sheet is a summary report of all the daily financial movements of the company. For this reason, keeping it up to date is of great importance, since having to consult all the daily movements of the company can be a very complicated task.

To construct a statement of financial position, the first thing to do is divide the report into two columns: the one on the left will correspond to assets, and the one on the right will correspond to equity and liabilities.

Once we have the two columns, we must have the daily accounting book up to date, which contains all the daily movements of the company. Having these data collected, they have to be transferred to the balance sheet, each one within their corresponding accounts according to their nature.

Once finished, you have to make sure that both columns add the same so that the balance is correct. This occurs because the total assets of the company were financed through capital put in by shareholders (reflected in equity) and external financing (reflected in liabilities).

Example

As an example, let's take a guitar manufacturing and distribution company.

First, we write down all the assets of it. Some examples could be:

Assets

Fixed assets

The building where the guitars are made, the land, the machines used, the computer equipment, the transport vans, etc.

Current assets

The inventory of guitars already manufactured, the total cash available to the company, or a right to collect for an advance on the sale made.

Once all the assets have been recorded, the liabilities are noted.

Passives

Non-current liabilities

€ 100,000 credit for 10 years with the bank for a loan for the initial investment of the company.

Current liabilities

€ 5,000 credit to be paid in 6 months to the company that supplies the materials to make the guitars.

Finally, we enter the net worth in the same column as the liabilities.

Net worth

We record the capital stock contributed by the shareholders at the initial moment and the profits not distributed until that moment.

Once we have all the data, the liabilities are added to the net worth. These must result in the same amount as the sum of the assets.

As we can see, the balance sheet is a simple and clear report of the economic and financial situation of the company. For this reason, it is convenient to keep it up to date, not only as a form of control but also to help in future decisions of the company.

References

1. Amat, Oriol (1998). Analysis of financial statements, fundamentals and applications. Ediciones Gestión 2000 SA
2. Williams, Jan R.; Susan F. Haka; Mark S. Bettner; Joseph V. Carcello (2008). Financial & Managerial Accounting. McGraw-Hill Irwin.
3. Daniels, Mortimer (1980). Corporation Financial Statements. New York: New York: Arno Press.
4. Dyckman (1992), Intermediate Accounting, Revised Ed. Homewood IL: Irwin, Inc.
5. Eugene F. Fama and Merton H. Miller (1974). The Theory of Finance. Holt Rinehart and Winston.
6. Mora Lead us, Araceli. Dictionary of Accounting, Audit and Management Control. Ecobook.