Balance Sheet

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After preparing the trial balance, the balances of the assets and liabilities accounts and the net owner's equity are transferred to prepare the statement of financial position.

Statement of Financial Position

The statement of financial position also called a balance sheet is a statement that is prepared to show the financial position of the company at specific date, through which this statement shows all the owned assets and the liabilities at a certain moment, so that the assets accounts appear in one side and the accounts for the liabilities and owner's equity in another side, and the total both sides must be equal, and the statement is prepared either in account form or report form, as follow:

:The statement of financial position in the form of a report
Total Amount	Partial Amount	Description
		Assets
		Current Assets
	xxx	Cash
	xxx	Bank
	xxx	Accounts receivable
	xxx	Notes receivable
	xxx	Goods
xxx		Total current assets
		Fixed Assets
	xxx	Lands
	xxx	Vehicles
	xxx	Furniture
xxx		Total Fixed Assets
		Intangible Assets
	xxx	Goodwill
	xxx	Trademark
xxx		Total Intangible Assets
		Other Assets
	xxx	Prepaid Expenses
	xxx	Accrued revenue
	xxx	Insurance recovery
xxx		Total Other Assets
xxx		Total assets
		Liabilities and owner's equity
		Current liabilities
	xxx	Accounts payables
	xxx	Short-term loans
	xxx	Notes payable
xxx		Total Current liabilities
		Long-term liabilities
	xxx	Long-term loans
xxx		Total long-term liabilities
		Other liabilities
	xxx	Accrued expenses
	xxx	Deferred Revenue
xxx		Total other liabilities
		Owner's equity
	xxx	Capital on 1/1
	xxx	Profits or losses
	xxx	Owner's Withdrawals
xxx		Net owner's equity
xxx		Total liabilities and owner's equity

The statement of financial position in the form of an account:
Assets	Amount	Liabilities and Owner's Equity	Amount
Current Assets		Current liabilities
Cash	xxx	Accounts payables	xxx
Bank	xxx	Short-term loans	xxx
Accounts receivable	xxx	Notes payable	xxx
Notes receivable	xxx	Total Current liabilities	xxx
Goods	xxx	Long-term liabilities
Total current assets	xxx	Long-term loans	xxx
Fixed Assets		Total long-term liabilities	xxx
Lands	xxx	Other Liabilities
Vehicles	xxx	Accrued expenses	xxx
Furniture	xxx	Deferred Revenue	xxx
Total Fixed Assets	xxx	Total other Liabilities	xxx
Intangible Assets		Owner's equity
Goodwill	xxx	Capital on 1/1	xxx
Trademark	xxx	Profits or losses	xxx
Total Intangible Assets	xxx	Owner's Withdrawals	xxx
Other Assets		Net owner's equity	xxx
Prepaid Expenses	xxx
Accrued revenue	xxx
Insurancerecovery	xxx
Total other Assets	xxx
Total assets	xxx	Total liabilities and owner's equity	xxx

Elements and items of the statement of financial position

In light of the previous sample of the statement, you find that the statement of financial position or what is known as the balance sheet involves two equal sides, one side for asset accounts and one side for liabilities and owner's equity. The relationship between these accounts can be represented by the following accounting equation:

Assets (entity's resources and property) = Liabilities (owes to others) + owner's equity (owes to owners)

Assets

Assets accounts represent all the economic resources and assets owned by the company, they are divided into several sections as follows:

Current Assets (short-term):: The current assets represent the assets owned by the company in the form of cash or which is expected to be converted into cash within the upcoming fiscal period (less than a year), such as cash on hand and at bank, accounts receivable, goods, notes receivable (bill of exchanges) etc.
Fixed Assets (long-term):: The fixed assets are the assets owned by the company for the purpose of assisting the company to practice its activity and to be used them for several years or for several subsequent fiscal periods, and is not the purpose of their acquisitions to be resold, such as lands, buildings, machinery, equipment, furniture, etc.
Intangible Assets (long-term):: The intangible assets are assets owned by the company and are lacking the tangible physical existence, such as the Goodwill, Trademark, Patents…etc.
Other Assets:: other assets represent the other accounts assets, which appear on assets side of the balance sheet, because they represent assets of the company, such as the prepaid expenses account and the accrued revenue account.

Liabilities

Liabilities represent all the debts and amounts due on the company, and are divided into current liabilities and non-current liabilities, as follows:

Current liabilities (short-term): Current liabilities are debts which the company is required to pay off within the upcoming fiscal period (less than a year), such as accounts payable, short-term loans, notes payable (Bill of Exchange) etc.
Non-current liabilities (Long-term): Non current liabilities are debts which the company is required to pay off within the upcoming fiscal periods (more than a year).
Other Liabilities: Other Liabilities represent the other accounts Liabilities, which appear on the liabilities side of the balance sheets, because they represent debts on the company, such as the accrued expenses account, the deferred (unearned) revenue account.

Owner's Equity

Owner's equity is the accounts that represent the liabilities of the company towards the owners of the enterprise (company), such as the capital account, Owner's Withdrawals account, retained earnings account, etc.

The accounts and items in the statement are arranged starting with the most liquid accounts, which are cash accounts or which are expected to be converted into cash within the upcoming fiscal period.

Example

The following are the balances of the account shown from the trial balance of Al-Salam Consulting Office as on 31/12/2020:

Credit	Debit	Account Name
	5000	Cash
	5300	Bank
	4000	Accounts receivable
	8000	Furniture and decorations
1000		Accounts payables
8000		Capital
	3000	Owner's Withdrawals
30000		Consulting revenue
	10000	Salaries expenses
	3000	Rent expenses
	300	Electricity expenses
	200	Telephone and internet expenses
	500	Advertising expenses
500		Profits of selling the shares
	200	Various losses
39500	39500	Total

Required:

Preparing the statement of financial position at the year ended 31/12/2020

Answer:

The statement of financial position as on 31/12/2020
Assets	Amount	Liabilities and Owner's Equity	Amount
Current Assets		Current liabilities
Cash	5000	Accounts payables	1000
Bank	5300	Total Current liabilities	1000
Accounts receivable	4000	Owner's equity
Total current assets	14300	Capital on 1/1	8000
Fixed Assets		Profits of the period	16300
Furniture and decorations	8000	Owner's Withdrawals	(3000)
Total Fixed Assets	8000	Net owner's equity	21300
Total assets	22300	Total liabilities and owner's equity	22300

Notes on the answer:

The assets side is equal to the liabilities side, and this means the correct transmission of information from the trial balance in terms of balance.
The net equity has been transferred from the statement of changes in equity; refer back the example in the previous lesson.

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