A statement of financial position, also known as a balance sheet, is a financial document that provides an overview of an entity's finances at a given point in time. These statements are commonly used by companies large and small, but they can also be applied to personal finances, for people who want to generate a document that they can use to review their financial situation for the purpose of making budgeting decisions or financial plans. Many accounting software programs have mechanisms to automatically create one.
There are two main areas on a statement of financial position. One covers the assets, everything owned by the person or company, including real estate, cash in hand, contents of bank accounts, and so forth. The other side includes the liabilities, funds owed. A statement usually breaks these sections up into several categories for ease of reference, so that people can quickly look up a topic of particular interest, such as accounts payable or overdue loans.
The liabilities also include the ownership equity or the shareholder equity in the business. The assets should equal the liabilities once the ownership or shareholder equity has been factored in, and if they do not, it is a sign that the financial statement is out of balance. This is in accordance with the accounting equation, which states that assets = liabilities + ownership or shareholder equity. Incidentally, this explains the term "balance sheet," which reflects the idea that the two sections of the sheet should be equal or balanced.
Commonly, a statement of financial position will be generated at the end of every month. Looking up past months can provide information about how a company's finances are progressing, and these documents can also be compared with statements from the same month in prior years. Using this document, decisions can be made about the next steps to take. If, for example, a company has a lot of assets, it may be a sign that it can comfortably expand because it has the available capital to do so.
Companies that are publicly traded must provide public disclosures about their financial health, including statements of financial position. These are provided to shareholders by request and are also commonly published to make them readily accessible to prospective investors. If a company has a website, they might be found on a section of the website that includes documents that the company is required to disclose by law.
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.