STATEMENT OF FINANCIAL POSITION

HOW A BALANCE
WHAT IS SFP? SHEET WORKS

The Statement of Financial Position or the Balance Sheet is used to All accounts in your general

illustrate the financial health of a business. A balance sheet helps ledger are categorized

business stakeholders and analysts evaluate the overall financial as an asset, a liability, or

position of a company and its ability to pay for its operating needs. equity. The items listed on

You can also use the balance sheet to determine how to meet your balance sheets can vary

depending on the industry,

financial obligations and the best ways to use credit to finance your
but in general, the sheet
operations.
is divided into these three
The balance sheet may also have details from previous years so you categories.

can do a back-to-back comparison of two consecutive years. This

data will help you track your performance and identify ways to build ASSETS
up your finances and see where you need to improve.
Assets are typically orga

nized into liquid assets,

or those that are cash or

2 FORMS OF BALANCE SHEET can be easily converted

into cash, and non-liquid

assets that cannot quickly

be converted to cash,
REPORT FORM such as land, buildings,

In this form, the accounts are and equipment. They may

also include intangible

presented inbone straight column
assets, such as franchise
- assets, liabilities and equity.
agreements, , and patents.
According to the Philippine

Accounting Standards (PAS), there

is no prescribed form for financial

LIABILITIES
reporting but the form should be

appropriate to the nature of Liabilities are funds owed

business and transactions of the by the business, it include

entity. loans, accounts payable,

mortgages, deferred

revenues, bonds, warranties,

ACCOUNT FORM and accrued expenses. In

The account form follows the style of the accounting equation (assets general, a liability is an

are on the left side of the SFP while liabilities and owner's equity are obligation between one

on the right side). . According tothe Philippine Accounting Standards party and another not yet

(PAS),the re is no prescribed form for financialreporting but the form completed or paid for.

should be appropriate to the nature of business and transactions ofthe

entity EQUITY

Equity, also known as

owners' equity or sharehold

ers' equity, is that which

remains after subtracting

the liabilities from the

assets. Retained earnings

are earnings retained by the

corporation—that is, not paid

to shareholders in the form

of dividends.