The statement of financial position is used as a basic accounting tool to summarize the company’s performance at the end of the accounting period, and this statement is an important reference for investors and shareholders to understand the company’s financial performance and make strategic decisions.
The list shows the balance between assets, liabilities, and equity, and this section shows whether the company is able to meet its financial obligations in the short and long term.
Using the statement of financial position, companies and investors can understand the current financial situation and identify future trends, contributing to successful strategic financial decision-making.
In this article, we will present the most important information related to the statement of financial position and a detailed example of it.
What is the concept of a statement of financial position?
It is an important financial statement that reflects the company’s financial position comprehensively over a specific period of time, and these statements include assets, liabilities, and equity and provide a comprehensive view of the company’s state and financial performance.
The statement of financial position is a comprehensive presentation of the financial condition of the institution during a specific period of time, whether quarterly or annual, and is expressed in a simple equation that shows the balance of assets with liabilities and shareholders’ equity. This equation shows how the institution finances its assets, whether by borrowing from abroad “liabilities” or financing from shareholders “shareholders’ equity.” To ensure balance, the total assets must be equal to the total liabilities and shareholders’ equity.
Equivalency of the statement of financial position:
Assets = liabilities minus shareholders’ equity
What are the elements of a statement of financial position?
The statement of financial position consists of several elements, including:
Accounting assets
Accounting assets are the resources that the company or organization owns and uses in the production of goods or the provision of services to achieve its business goals, and accounting assets are used to measure the wealth of the organization and its ability to achieve its long- and short-term financial goals.
Accounting assets are divided into several types based on their nature and uses, including:
Fixed assets: this includes fixed property that a business owns for use in operations for a long period of time, such as real estate, machinery, and equipment.
Current Assets: These include money and property that can be converted into cash within a short period, such as cash, accounts payable, and stocks.
Intangible assets: These include assets that do not take physical form, such as patents, trademarks, goodwill, and intellectual property rights.
They include funds and property owned by the company and used in its operational activities.
Accounting liabilities
Accounting liabilities refer to the financial liabilities that an institution or company must pay in the future to external or internal parties. The importance of understanding accounting liabilities is to evaluate the institution’s ability to meet its financial obligations in the future and determine financial liquidity and financial stability.
These liabilities are divided into several types based on their nature and maturity, which include:
Current liabilities are financial obligations that must be paid in the near future, such as short-term debts and outstanding expenses, namely:
Commercial vendor debt.
Undistributed dividends accrue to shareholders.
Zakat payments.
Long-term loan installments are payable.
Long-term liabilities: These include long-term debts such as loans and bonds.
There are also other financial obligations, such as taxes due, salaries due, and others.
Shareholders’ equity
Shareholders’ equity in the statement of financial position is a primary source of financing for the company’s activities and reflects the company’s ability to achieve future gains. Shareholders’ equity is calculated by subtracting total liabilities from total assets, where the difference between the value of assets and discounts shows the size of shareholders’ equity.
An example of a statement of financial position
After we have introduced the concept of the statement of financial position and explained the most important elements of this statement, it is necessary to mention an example of it that supports what has been explained, and the following is a statement of that:
| Amount | Assets | Amount | liabilities |
| Xxx Xxx Xxx Xxx Xxx Xxx
Xxx Xxx Xxx Xxx
Xxx Xxx Xxx Xxx
Xxx Xxx Xxx xxx | Current Assets fund Bank debits Notes Receivable Goods Total Current Assets
Fixed assets Lands and buildings Equipment and tools Cars and vehicles Total fixed assets
Intangible assets The reputation of the institution trade mark Intellectual property rights Total intangible assets
Other debit balances Advance fees Accrued revenue Insurances Total other debit balances
| Xxx Xxx Xxx Xxx
Xxx Xxx
Xxx Xxx Xxx
Xxx Xxx Xxx xxx
| Short-term liabilities Payables Short-term loans Notes Payable Total short-term liabilities
Long-term liabilities Long-term loans Total long-term liabilities
Other credit balances deserved payments Income received in advance Total other credit balances
Shareholders’ equity Capital at 1/1 profits and losses Personal withdrawals Net shareholders’ equity |
| xxx | Total assets | xxx | Total liabilities |
What is the difference between the statement of financial position and the income statement?
The statement of financial position and the income statement are two essential parts of companies’ financial statements, but each of them has a different role, and the following is an explanation of that:
Statement of financial position
- It provides a comprehensive view of the components of the company’s financial resources and its financial position at a specific point in time.
- It consists of three main components: assets, liabilities, and equity.
- They are used to evaluate a company’s ability to take risks, determine how to finance its activities, and measure its overall financial performance.
income Statement
- It reflects a company’s operations during a given period of time, including sales, costs, revenues, and expenses.
- It is used to calculate the net income (profit or loss) generated by the company’s activities during the specified period.
- It helps estimate the company’s performance in achieving profit and analyze its financial returns.
In short, the statement of financial position provides a snapshot of a company’s resources and financial position, while the income statement focuses on practical financial performance over a specific period of time.
What is the importance and use of the statement of financial position?
The statement of financial position is an important tool in the field of accounting and finance and has many uses and importance, including:
- Providing a comprehensive overview of the financial position: The statement of financial position helps understand the company’s financial position by displaying all the main components, such as assets, liabilities, and shareholders’ equity.
- Estimating the company’s ability to bear risks: The statement of financial position can help investors and creditors evaluate the company’s ability to bear financial and economic risks.
- Reference for decision-making: The information presented in the statement of financial position provides important information for making financial decisions, such as financing, investment, and expansion decisions.
- Compliance with accounting standards: Statements of financial position help ensure compliance with international accounting standards, making financial statements easier to understand and analyze.
- Financial performance analysis: The financial position statement can be used to analyze a company’s performance over time, identify strengths and weaknesses, and identify financial trends.
- Attracting financing: The statement of financial position is an important document when requesting financing from banks or investors, as it is used to evaluate the feasibility of their investment.
In general, the statement of financial position represents a vital tool for managing companies, making strategic financial decisions, and achieving success and sustainability in the financial market.
How do you prepare a statement of financial position through the Qoyod platform?
The statement of financial position is one of the most prominent financial statements, provided by computerized accounting programs such as the Qoyod accounting system that comprehensively details assets and liabilities, enabling you to determine the specific period for issuing the list, whether annual or quarterly. You can also print it in PDF or Excel format and keep data securely in the cloud.
Conclusion
The Qoyod system is considered one of the best accounting systems available to manage accounting matters efficiently and effectively, as it is not just a traditional accounting system but represents your strategic partner in your business success journey. By providing the necessary tools and features for financial reporting and improving the management of money, inventory, and customers, Qoyod contributes to enhancing transparency, efficiency, and financial sustainability for the company.
With its comprehensive financial reporting capabilities, Qoyod provides easy and convenient preparation of your organization’s statement of financial position and provides outstanding technical support to its users, ensuring smooth and reliable use.
By choosing Qoyod as an accounting system for your company, you ensure improved financial performance, better customer service, and achieving success and continuous growth for your business. So your investment in the Qoyod program is a wise investment, which contributes to building a bright future for your company and achieving the set financial and professional goals. It’s okay, you can take the fastest route and use good accounting software for your business, but which one would you choose? If you try Qoyod now for free and for 14 days, you won’t regret it.
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