{"id":9774,"date":"2022-12-11T09:11:08","date_gmt":"2022-12-11T09:11:08","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=9774"},"modified":"2024-12-28T13:57:49","modified_gmt":"2024-12-28T13:57:49","slug":"statement-of-financial-position","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/statement-of-financial-position\/","title":{"rendered":"What is a company\u2019s statement of financial position?"},"content":{"rendered":"            <div class='post-lastupdated'>\n                <strong>Last updated: 28 Dec 2024<\/strong>\n            <\/div>\n        \n<p>A statement of financial position is commonly known as a \u2018balance sheet\u2019. It shows a company&#8217;s assets, liabilities, and equity on any given date, providing a snapshot of its overall value at that point in time.<\/p>\n<p>Below, we provide a brief overview of the statement of financial position, including the information it should contain and when you need to prepare one.<\/p>\n<h3>The statement of financial position<\/h3>\n<p>The purpose of the statement of financial position is to summarise a company\u2019s assets (what it owns), liabilities (what it owes), and equity (assets less liabilities) on a particular date\u2014usually at the end of a financial month, quarter, or year.<\/p>\n<p>Showing the economic position of a limited company on a specific date, the statement is an essential tool for:<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n<ul>\n<li>understanding the financial health of your business<\/li>\n<li>making financially sound decisions to sustain and grow your company<\/li>\n<li>securing capital from investors and lenders<\/li>\n<\/ul>\n<p>The statement also plays an important role when preparing your company\u2019s <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/preparing-annual-accounts-limited-company\/\" data-wpel-link=\"internal\">annual accounts<\/a>. It is one of three financial reports you must include. The other two are the income statement (also known as a profit and loss statement) and the cash flow statement.<\/p>\n<h3><strong>What&#8217;s included in a statement of financial position?<\/strong><\/h3>\n<p>The three main components of the statement of financial position are assets, liabilities, and equity, broken down into various categories.<\/p>\n<p>However, the way in which the statement is presented varies from company to company, depending on the types of assets, liabilities, and equity they have.<\/p>\n            <div class=\"names_shortcode\">\n                <a href=\"https:\/\/acn.ionos.co.uk\/aff_c?offer_id=3&amp;aff_id=8964&amp;url_id=309\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/242634_Domains_Banner-Cooperation_QCF_325x340_UK.png\"\n                        alt=\"FREE .co.uk Domain Name.\"\n                        class=\"names_shortcode-mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/242634_Domains_Banner-Cooperation_QCF_980x150_UK.png\"\n                        alt=\"FREE .co.uk Domain Name.\"\n                        class=\"names_shortcode-desktop\">\n                <\/a>\n            <\/div>\n        \n<p>Broadly, the statement of financial position should show the following items, where applicable:<\/p>\n<h4>Assets<\/h4>\n<ul>\n<li>Current assets (e.g. cash at bank, cash in hand, inventory)<\/li>\n<li>Trade receivables (debtors; money that clients or customers owe the business)<\/li>\n<li>Fixed assets (e.g. property, vehicles, machinery, equipment)<\/li>\n<li>Intangible assets (e.g. trademarks, patents, licences, copyrights)<\/li>\n<\/ul>\n<h4>Liabilities<\/h4>\n<ul>\n<li>Trade payables (money that the company owes to its suppliers and service providers)<\/li>\n<li>Business tax (VAT, <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/how-corporation-tax-works\/\" data-wpel-link=\"internal\">Corporation Tax<\/a>, PAYE payments due)<\/li>\n<li>Bank loans and mortgages<\/li>\n<li><a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/directors-loan\/\" data-wpel-link=\"internal\">Directors\u2019 loans<\/a><\/li>\n<\/ul>\n<h4>Equity<\/h4>\n<ul>\n<li>Share capital (the amount of money the shareholders have invested in shares)<\/li>\n<li>Additional paid-in capital (e.g. share premiums)<\/li>\n<li>Retained profit brought forward<\/li>\n<li>Current year\u2019s profit\/loss<\/li>\n<\/ul>\n<p>The statement of financial position follows the basic accounting equation of Assets = Liabilities + Equity. Therefore, the resulting figure shown at the end of the statement will be the difference between the company\u2019s assets and liabilities. This is the company&#8217;s overall value or net worth on the date the statement is produced.<\/p>\n<h3>When do I need to prepare a statement of financial position?<\/h3>\n<p>As a company director, you are legally obligated to generate a statement of financial position when preparing annual accounts for shareholders, Companies House, and HMRC.<\/p>\n<p>You must prepare a statement at least once a year on the <a href=\"http:\/\/www.apple.com\/uk\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">accounting reference date<\/a> (ARD). The ARD is the end of your company\u2019s financial year. All statements and reports in the accounts must be made up to that date.<\/p>\n\t\t<div class=\"worldfirst_shortcode\">\n\t\t\t<a href=\"https:\/\/portal.worldfirst.com\/register?region=UK&amp;affiliate_id=10378\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n\t\t\t\t<img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/WFT_BANNER_326x341.png\"\n\t\t\t\t\talt=\"Worldfirst - Pay and get paid in multiple currencies\"\n\t\t\t\t\tclass=\"worldfirst_shortcode-mobile\">\n\t\t\t\t<img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/WFT_BANNER_980x150.jpg\"\n                    alt=\"Worldfirst - Pay and get paid in multiple currencies.\"\n\t\t\t\t\tclass=\"worldfirst_shortcode-desktop\">\n\t\t\t<\/a>\n        <\/div>\n        \n<p>However, it is worthwhile producing a statement of financial position regularly\u2014for example, at the end of each financial month and quarter. This will provide valuable insight, helping you keep track of your company\u2019s finances and growth over time and informing future decision-making.<\/p>\n<p>Additionally,\u00a0<span style=\"box-sizing: border-box; margin: 0px; padding: 0px;\">suppose you&#8217;re considering issuing\u00a0<a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-dividends\/\" target=\"_blank\" rel=\"noopener\" data-wpel-link=\"internal\">dividend payments<\/a> to shareholders. In that case,<\/span>\u00a0the statement will help you determine how much distributable profit the company has and whether paying dividends is the right decision at that time. Upon issuing dividends, the retained earnings on the statement will reduce.<\/p>\n<p>                                                    <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/accounting-reference-date\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">What is an accounting reference date for a limited company?<\/span><\/a>\n                                                                        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/issue-dividends\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">How to issue dividends in a company limited by shares<\/span><\/a>\n                                                                        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/using-hmrcs-new-vat-registration-estimator-tool\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">A guide to using HMRC\u2019s new VAT Registration Estimator tool<\/span><\/a>\n                    <\/p>\n<p>A statement of financial position is also an effective way to show prospective investors, creditors, and suppliers that your business has a good financial standing. This will enable them to make informed decisions about their likely return on investment or the level of risk involved in lending or supplying to your company.<\/p>\n<p>You can prepare these statements yourself. However, an accountant is best placed to handle your company\u2019s accounting needs. Double-entry bookkeeping\u2014the key principle in producing an accurate balance sheet\u2014can be complex if you don&#8217;t have experience in this area.<\/p>\n<h3>Wrapping up<\/h3>\n<p>Aside from being one of the three financial reports you need to include in your annual accounts, the statement of financial position is an essential tool for assessing your company&#8217;s financial health at any given time.<\/p>\n<p>Whether you want to compare the company\u2019s performance against previous months or years, secure funding from lenders or new investors, or determine the future viability of the business, the statement will provide valuable insight and help you make informed decisions.<\/p>\n<p>If you have any questions about this post, please comment below.\u00a0<span style=\"box-sizing: border-box; margin: 0px; padding: 0px;\">Explore the <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/\" data-wpel-link=\"internal\">Quality Company Formations Blog<\/a> for more limited company guidance and small business advice<\/span>.<span class=\"Apple-converted-space\">\u00a0<\/span><\/p>\n            <div style=\"display: none\"><\/div>\n        \n"},"excerpt":{"rendered":"<p>A statement of financial position is commonly known as a \u2018balance sheet\u2019. It shows a company&#8217;s assets, liabilities, and equity on any given date, providing a snapshot of its overall value at that point in time. Below, we provide a brief overview of the statement of financial position, including the information it should contain and&hellip;<\/p>\n","protected":false},"author":10,"featured_media":9777,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false},"categories":[1239],"tags":[],"class_list":["post-9774","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-accounting-finance","category-1239","description-off"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.2 (Yoast SEO v24.2) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is a Company&#039;s Statement of Financial Position?<\/title>\n<meta name=\"description\" content=\"We provide an overview of the statement of financial position, including the information it should contain and when you need to prepare one.\" \/>\n<meta name=\"robots\" content=\"index, follow, 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