The Statement of Financial Position

The Statement of Financial Position may be defined as "a statement which sets out the assets (items having a debit balance) and Liabilities (items having a credit balance) of a firm or an organization as at a certain date." Since even a single transaction will made a difference to some of the assets or liabilities, the Statement of Financial Position is true only at a particular point of time. That is the significance of the word "as at".

The Statement of Financial Position has certain characteristics which should be noted.

These are the following:

(i) It is prepared at a particular date, rather the close of a day and not for a period. It is true only on that date and not later or before;

(ii) The Statement of Financial Position is prepared only after the preparation of the Statement of Profit or Loss. This is the reason why the Statement of Profit or Loss (including the Trading Account) and the Statement of Financial Position are together called Financial Statements. Without being accompanied by the Statement of Profit or Loss, the Statement of Financial Position will not be able to throw adequate light on the financial position of the entity.

(iii) Since capital always equals the difference between assets and liabilities and since the capital account will independently arrive at this figure, the two sides of the Statement of Financial Position must have the same total. If it is not so, there is certainly an error somewhere.

Format of Statement of Financial Position