What Is A Limited Company Statement Of Financial Position (Formerly Balance Sheet)?
Here, we will take a moment to give you a clear explanation of what’s exactly reported on a Statement of Financial Position, and why you should have one.
Think Like An Accountant
You must have noticed that your Statement of Financial Position is broken into years such as 2018 and 2019. Actually, these are not the usual calendar years, however, these are company financial years, also known as “accounting periods”.
The Year-End of every company is unique and it is set during the time that the company was incorporated. However, the directors of the company can change it. The Statement of Financial Position usually shows the accounting period that it covers. For instance, the company’s financial year 2019 could cover the accounting period of February 1, 2018, to January 31, 2019.
Want to switch to More Than Accountants? You can get an instant quote online by using the form below. In a like for like comparison for services we are up to 70% cheaper than a high street accountant.
The Statement of Financial Position will detail the assets, liabilities as well as the equity of your company at a particular date, usually every twelve months. Essentially, the statement displays the transactions and the date they were incurred.
For instance, if your company made a payment for a hotel room to be used for a conference held in January 2019, however, it was only in March 2019, that you recorded it. This transaction must be included in your 2019 Statement of Financial Position for the accounting period that ended on January 31, 2019. This is also referred to as an “accrued expense”.
The Statement of Financial Position contains two columns per year. However, you should not easily get confused by it. It only displays the performance of your company so you can make a comparison between the previous and the current year. The horizontal line represents the total of the figures above them. Keep in mind that if the figures have brackets, then it only signifies losses or liabilities.
So What Are Actually Included On A Statement of Financial Position?
Fixed Assets and Current Assets
This might be a bit confusing for you, yet this is actually very simple. Assets refer to the things that are owned by your business. When we say “Fixed Assets”, then it means that the asset can be useful within a span of more than 12 months, for instance, property, plant and equipment. On the other hand, when we say “Intangible Assets”, then it refers to those that do not have any physical presence, yet they are valuable to the business and has a life of over 12 months. For instance, customer loyalty, goodwill, trademark, etc.
When it comes to “Current Assets,” this includes bank balances, cash and assets which can be converted into cash such as stock and debtors.
Trade or Other Debtors
Debtors refer to those individuals who owe you money. When it comes to “Trade Debtors,” this will comprise any outstanding amounts that your customers owe you. On the other hand, “Other Debtors” pertains to the money your business is owed which it is not coming from sales. Most often, this includes refunds anticipated from HMRC or the Director’s Loan Account.
This combines two different types of balances in a single entry. The first one is the “Cash in Hand,” which refers to the physical cash that is in the possession of the company, including coins and notes. It also includes all the money that is found on your petty cash drawer. The second one is the “Cash at Bank,” which obviously refers to your bank balance. This incorporates all the bank balances from your company’s current and savings accounts.
Creditors refer to those individuals you owe money to and the liabilities are divided into long-term and current. A long term liability refers to those you anticipate to settle in more than 12 months, for instance, a bank loan. On the other hand, a current liability refers to those you anticipate to settle within 12 months, for instance, operating costs and payments to suppliers.
What Does a Statement of Financial Position Do?
Basically, a Statement of Financial Position displays the assets of your business as well as the liabilities it requires to settle with others. The statement also illustrates how your company performs over time. This includes the reserves gathered and the capital which shows the overall amount that will be distributed to the shareholders at a certain time.
If you want to have an idea on the financial health of your company, then this can be seen on the Statement of Financial Position.
The Importance Of Good Bookkeeping
Ther are tons of useful information that you can obtain from good online accounting software which can assist you in operating your business and making plans for the future. But keep in mind that the software will only be good as the data you put in. No matter what accounting software you use, you have to spend some time each month for your bookkeeping to ensure that things are always up to date.
In other words, you have to make sure that you have issued invoices and have recorded the expenses. It is important to issue invoices so you can get paid. Also, don’t forget to reconcile your bank statements with your software to make sure that everything matches.
By keeping yourself on top of all things, you can get an idea on how your business performs as well as your tax liability and profitability. Aside from knowing how much you are going to pay for the dividend, you can also have a clear picture of how your business is performing, so you can focus your attention on growing your business.