The Statement of Financial Position, also known as the Balance Sheet, provides a snapshot of an entity’s financial position at a specific date. It outlines three main components:
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Assets: These represent what the entity owns or controls to derive economic benefits. Assets are classified as either current (expected to be realized within one year) or non-current (delivering benefits over the long term). They can be tangible (physical) or intangible (without physical substance).
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Liabilities: These represent the entity’s obligations or debts. Like assets, liabilities are categorized as either current (due within one year) or non-current (long-term).
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Equity: Also known as owner’s equity or shareholders’ equity, it represents the residual interest in the entity after deducting liabilities from assets
The balance sheet helps users assess an entity’s financial soundness in terms of liquidity risk, financial risk, credit risk, and business risk. It ensures that the accounting equation remains balanced:
[ Assets = Liabilities + Equity ]
Summary: The summary of financial position provides us a comprehensive view of an organization’s financial health on a specific date.