The Position Statement depicts the financial position of a business entity. Position Statement also called Balance Sheet shows the financial position or Assets and Liabilities Position of business entity as on a particular financial year. Position Statement has Assets and Liabilities contained in it which is one of the crucial Financial Statements of business entity.
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What is a Balance Sheet or Position Statement?
Position statement has Assets and Liabilities in it. Position statement also called Balance sheet is prepared to depict the financial position of business entity or Assets and Liabilities position as on particular date particularly at the end of financial year.
Assets are the resources which generate future economic benefits to business entity. Assets are divided into Non current assets and current assets. Non current assets are those resources which yield long term future economic benefits to business entity and which are held not for sale but to produce goods and services. The examples of non current assets are land, building, furniture, goodwill, patents, plant and machinery. Current assets are assets which are held for below one year which yield economic benefits. The examples of current assets are cash in hand, cash at bank, inventories, debtors, bills receivables. Investments are also included under Assets. Investments could be long term investments and short term investments.
Liabilities include both equity and liabilities. Liabilities are the debts and dues of the business entity. Liabilities are the borrowings, loans, dues and debts of the business entity. Liabilities are divided into Non current liabilities and current liabilities. Non current liabilities are long term borrowings and debts of the business entity. Non current liabilities include Loans from banks and financial institutions which are repayable after one year, debentures. Current liabilities are dues which are repayable within one year or short period of time. Current liabilities include creditors for goods, suppliers for raw materials, bills payable, bank overdraft, outstanding expenses. Equity is the owners capital or equity share capital and reserves and surpluses.
Position statement is prepared as per the Accounting equation approach where total of Assets are equal to the total of Liabilities and equity capital.
Assets = Liabilities + equity capital
Equity capital = Assets - liabilities
let us take an example of Beta limited whose balance sheet appears as follows:
Balance sheet of Beta limited as on 31.03.2020
Liabilities Amount $ Assets Amount $
Equity share capital 9000 Furniture 1000
Reserves&surplus 500 Building 25000
Long term loans 8000 plant & machinery 1000
Debentures@10% 9500 cash in hand 1000
creditors 1000 Debtors 1000
Bank overdraft 2000 Inventory 1000
30000 30000
Balance sheet or position statement has Assets and Liabilities side. Both Assets side and liabilities side total must be equal. Total of Assets and Liabilities side must tally. If Assets side total does not equal to Liabilities side total then it implies there could be clerical errors or omission of line items. The above Balance sheet or position statement of Beta limited has equal Assets and Liabilities total of 30000$.
This is because of accounting equation approach where Assets = Liabilities + Equity capital. It means Assets have debit balances and Liabilities & Equity have credit balances. Under Double entry system of Accounting every debit is equals to corresponding credit or Total of Debit is equal to Credit total.
Conclusion
Position statement or Balance sheet is the crucial financial statement showing the financial position of the business entity as on a particular date. Position statement helps investors, creditors, management to judge the financial position and Net worth of the business entity
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