The statement of financial position which is also known as the balance sheet, is a financial statement that reports the assets, liabilities and equity of a company at a particular date.
The statement shows what a company owns (assets), how much it owes (liabilities), and the value that would be returned to the investors if the company was liquidated (equity).
It is usually presented with a comparative period which helps users of financial statements to track the financial performance of the company from one period to the next.
The statement is important to both management and investors as it assists them to make decisions about the company. It is usually used to perform a ratio analysis of the business.
In this post we will be focusing on the asset section of the statement.
An asset is defined as a present economic resource controlled by the entity as a result of past events.
On the statement of financial position, assets are divided into two subsections, current and non- current assets.
Current asset
These are assets that can be converted into cash within the next 12 months.
Examples are as follows:
- Trade receivables: This is the balance receivable from customers for sales given on credit.
- Cash and cash equivalents: The most liquid of all assets, cash is included here which is the company’s bank balances.
- Inventories: This is the stock the company currently has on hand to be sold.
Non-current asset
These assets are of a more permanent (long-term) nature whose benefits will be realised over more than one year and cannot be easily converted into cash.
Examples are as follows:
- Property, plant and equipment: These are tangible assets such as land, buildings, furniture, computer equipment and other equipment a company owns.
- Intangible assets: These are assets that lack physical form but still provide economic value to the company, it includes goodwill and intellectual property such as patents and trademarks.
- Long term investments: These are investments that a company has made in financial markets that it expects to appreciate in value and earn a good return in the future.