Question

Identify and describe the key components of the Statement of Financial Position

Answer 1

Statement of Financial position is also known as Balance sheet, which depicts the financial position of an entity at a given date. It has three key compenents which are as follows -

a) Assets - Assets are entity's property which it owns and controls to derive economic benefit out of its use. It is further classified as current (Accounts receivable, Cash, Inventory) and non-current assets (Tangible and Intangible assets).

b) Liabilites - Liability is an obligation of an entity which it owes to someone and which is settled by cash or other resources. It is further classified as current (Accounts payable, Short term borrowings) and non-current liabilities (Long term borrowings).

c) Shareholders' Equity - It is owed by the business to its owners, it is arrived by reducing liabilities from assets. It comprises of Share capital, Retained earnings, revaluation or other reserves.