He 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 financial situation report is one of the parts of the financial statements or annual accounts of the company.
Along with this statement are taken into account the statement of income (or profit and loss), the statement of changes in equity, the statement of cash flows and memory. The balance consists of three blocks: the asset, the liability and the net worth, and are obtained through a strict accounting of the movements of the company.
The asset refers to all the elements that are owned by the company and that contribute money or will do so in the future, such as buildings, stocks or computer equipment. In contrast, 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 advances of purchases. As for the net worth, it is the difference between the assets and the liabilities, and they are the capital contributions of the shareholders of the company plus the undistributed profits.
- 1 Structure
- 1.1 Active
- 1.2 passive
- 1.3 Net worth
- 2 How to make a state of financial situation?
- 3 Example
- 3.1 Assets
- 3.2 Liabilities
- 3.3 Net worth
- 4 References
The structure of the statement of financial position is divided into two blocks: one with the asset, and the other with the liability and net worth. Both blocks have to add the same amount, since the assets must be financed by net worth or by liabilities.
The asset is all the goods, services or rights, tangible or intangible, that produce a value to the company.
These assets appear in the balance sheet with their economic value, and are divided into two large groups: fixed or non-current assets and current or current assets.
Fixed or non-current assets are those assets and rights that remain in the company for more than one year. These might be:
- Tangible assets, such as buildings, equipment or furniture.
- Intangible assets, such as industrial properties, computer applications or transfer rights.
Current or current assets
Are the assets that become liquid in less than a year; that is, they are transformed into money in less than twelve months. These might be:
- Stocks, as finished products in stock .
- Short-term collection rights.
The liability refers to all future financial obligations on the part of the company. They are part of the financing of the company together with the net worth. The liability can be divided into:
They are those that have to be paid within a period of more than one year, which means that they have more than one year with the company. An example could be a loan to pay in 5 years.
Current or current liabilities
They are those that have to be paid during the current financial year; that is, in less than a year. A short-term loan could be an example of current or current liabilities.
They are all the elements corresponding to the organization's own financing. Therefore, the sum of this and the liabilities 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 it can also point to some accounting adjustments. The undistributed profits of the company must also be included in the net worth. In this way, the patrimony is a great indicator of the value of the company.
How to make a state of financial situation?
The balance sheet is a summary report of all the daily financial movements of the company. Therefore, keeping it up to date has 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 situation, the first thing to do is divide the report into two columns: the one on the left will be the one corresponding to the assets, and the one on the right will correspond to the net worth and the liabilities.
Once we have the two columns, we must have the daily accounting book, holder of all the daily movements of the company. Having these data gathered, they have to be transferred to the balance sheet, each within their corresponding accounts according to their nature.
Once finalized, it is necessary 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 by the capital put in by the shareholders (reflected in equity) and external financing (reflected in the liability).
As an example, let's take a guitar manufacturing and distribution company.
First, we write down all the assets of the same. Some examples could be:
The building where the guitars are made, the land, the machines used, the computer equipment, the transport vans, etc.
The stocks of guitars already manufactured, the total cash available to the company, or a right to payment for an advance payment made.
Once all the assets are listed, the liabilities are recorded.
100 000 € credit for 10 years with the bank for a loan for the initial investment of the company.
€ 5,000 credit to be paid in 6 months to the company that supplies the materials to manufacture the guitars.
Finally, we point to net worth in the same column as the liability.
We point out the social capital 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 see, the balance is a simple and clear report of the economic and financial situation of the company. Therefore, it is convenient to keep it up to date, not only as a form of control, but also as a help in the future decisions of the company.
- Amat, Oriol (1998). Analysis of financial statements, fundamentals and applications . Ediciones Gestión 2000 S.A
- Williams, Jan R.; Susan F. Haka; Mark S. Bettner; Joseph V. Carcello (2008). Financial & Managerial Accounting . McGraw-Hill Irwin.
- Daniels, Mortimer (1980). Corporation Financial Statements . New York: New York: Arno Press.
- Dyckman (1992), Intermediate Accounting , Revised Ed. Homewood IL: Irwin, Inc.
- Eugene F. Fama and Merton H. Miller (1974). The Theory of Finance . Holt Rinehart and Winston.
- Mora Enguidanos, Araceli. Dictionary of Accounting, Auditing and Management Control . Ecobook