Depiction of Financial Position

The financial position of a business is a snapshot of what it owns and what it owes at a specific moment — the end of an accounting period. Accounting does not stop at measuring profit; it must also show the business’s overall health by listing its assets and liabilities. This is the second major objective of accounting, alongside the determination of profit or loss.

Assets are the resources owned by the business — things of value that help it operate and generate income. They include cash, bank balances, inventory (stock of goods), land and buildings, plant and machinery, furniture, and amounts owed to the business by its customers (debtors).

Liabilities are the claims against those resources — the amounts the business owes to outsiders. These include bank loans, creditors (suppliers to whom money is owed), outstanding expenses, and any other borrowings.

The statement that presents assets on one side and liabilities on the other is called the Balance Sheet (also referred to as the Position Statement). It is not an account; it is a statement prepared from the ledger balances after the profit or loss has been transferred to the capital account.

The Balance Sheet is usually presented in a T-shaped format (horizontal form) with liabilities on the left side and assets on the right side. The total of the left side must equal the total of the right side.