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2 Assets and Liabilities

Statement of Financial Position Fundamentals

Jacqueline Gagnon


An eye in a circle—the 'see' section of the think-see-do approach.


Here’s an example of a Statement of Financial Position in good form. You’ll be expected to produce similar Statements of Financial Positions. Note the title, which is important. It starts with the company name, then the type of statement (Statement of Financial Position), then as at and the current date. These two words, as at, are really important. They signal that the Statement of Financial Position represents a snapshot in time of the company’s financial position: what they own and owe as at the fiscal year end date. Here’s a sample Statement of Financial Position that you can use as a reference for your work:

Teeter’s Totters Inc.
Statement of Financial Position
As at 31 December 2020

Assets
Current Assets:
Cash and Equivalents
Short-Term Investments
Accounts Receivable
Inventory
Total Current Assets  
Non-Current Assets:
Long-Term Investments  
PP&E:
Land
Buildings (net)
Equipment (net)
Furniture
Total PP&E  
Intangible Assets:
Patents
Copyrights
Goodwill
Total Intangible Assets  
Total Non-Current Assets  
Total Assets  
Liabilities & Equity
Liabilities:
Current Liabilities:
Accounts Payable
Sales Tax Payable
Interest Payable
Other Accrued LiabilitiesAccrued Liabilities:
Current liability accounts that represent expenses recorded in advance of cash payment. Examples include accrued salaries (also called salaries payable) and accrued interest (also called interest payable).
Current Portion of Long-Term Debt
Total Current Liabilities  
Non-Current Liabilities:
Long-Term Debt (net)
Mortgage Payable
Total Non-Current Liabilities  
Total Liabilities  
Equity:
Common SharesCommon Shares:
Capital contributed by common shareholders. Common shares are subordinate to debt and preferred shares. Also called ordinary shares.
Preferred SharesPreferred Shares:
Capital contributed by preferred shareholders. These shares are subordinate to debt but have a higher claim on company resources than common shares. Preferred shares are usually non-voting. Also called preference shares.
Contributed Surplus
AOCI
Retained EarningsRetained Earnings:
Returns on capital contributed by shareholders. For a typical company, retained earnings is calculated as net income less dividends, accumulated over the life of the company to date.
Total Equity  
Total Liabilities & Equity  

Don’t worry if you don’t understand what all these accounts mean. I want to be somewhat thorough at this point so you can use this Statement of Financial Position as a reference, but we haven’t discussed every account.


A lightbulb brain in a circle—the 'think' section of the think-see-do approach.


You may be wondering: what is this equity section? That’s a great question. The equity section is what shareholders own in the company. It is what’s leftover after a company uses its assets to pay liabilities. Remember that Assets − Liabilities = Equity. There are only three possible classifications, so anything that’s not an asset or a liability is classified as equity.

On the Statement of Financial Position, you will see common shares and retained earnings in the equity section. The account common shares is cash paid into the company by shareholders. retained earnings are earnings on the contributed capital. Shareholders invest money in the company as common shares, then that investment grows as the company earns profitProfit:
What is leftover when expenses are deducted from revenue. See also: gross profit, operating income, net income.
. We call that growth retained earnings. Equity is so important that it gets its own statement: the Statement of Changes in EquityStatement of Changes in Equity:
One of the four financial statements prepared by companies in their reporting cycle. It details transactions recorded during the period that affected equity balances. Transactions affecting common shares include share issuances and repurchases. Retained earnings is affected by net income (or loss) and dividends declared. The ending account balances from the Statement of Changes in Equity are presented as Equity on the Statement of Financial Position.
, but we’ll get to that later.

Right now, let’s move on to the next section. We will discuss how a financial statement user might use assets and liabilities to evaluate a company’s condition. This is important because users like employees, investors, and suppliers rely on these evaluations to make decisions.

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Mastering Financial Statements Copyright © by Jacqueline Gagnon. All Rights Reserved.

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