Balance Sheet Example (Statement of Financial Position)
Learn what a statement of financial position is, its purpose, and the three main elements that compose it.
The statement of financial position, commonly called the balance sheet, is a summary of all assets, liabilities, and shareholders’ equity of a company as reported at a given date. It provides an overview of their situation and financial health as well as the company’s future performance.
What is the purpose of the balance sheet?
The balance sheet tracks organizational growth. By regularly compiling these statements, companies and external investors can evaluate financial evolution. The document shows what you own, what you owe, and the value accumulated over time.
The three main elements
1 - Assets
Assets are everything the company owns. They are divided into current assets (cash, accounts receivable, inventory) and fixed assets (property, equipment, intangible assets).
2 - Liabilities
Liabilities represent everything your company owes. Current liabilities include accounts payable, outstanding loans, and wages due. Long-term liabilities include mortgages and obligations maturing beyond one year.
3 - Shareholders’ equity
Shareholders’ equity indicates how much the shareholder actually owns. Calculated by subtracting liabilities from assets, it represents net worth including invested capital, retained earnings, and net income.