The statement of financial position reports the position of the entity's assets, liabilities, and equity at a given point in time. The statement of financial position is useful for assessing the entity's risks and future cash flows.

Judging from its contents, the Statement of Financial Position is the basis for calculating the rate of return and evaluating the company's capital structure. Information in the Statement of Financial Position can also be used to assess a company's risk and future cash flows. In this case, the Statement of Financial Position can be used to analyze the company's liquidity, solvency, and financial flexibility.

Liquidity can be said to be a benchmark for describing the amount of time needed until obligations can be realized or paid. This ratio can help investors and creditors assess a company's ability to pay off its short-term debt. Meanwhile, for shareholders, the liquidity ratio is used to evaluate the possibility of future cash dividends or share buybacks. So it can be concluded that the greater the liquidity ratio of a company, the smaller the risks faced by the company.

Solvency is a ratio that refers to a company's ability to pay its debts at maturity. It can be said that a company is at risk if it has both short-term and long-term debt, while the assets owned by the company that should be allocated for expansion and development of the company must be distributed to cover these debts. So that the risks faced are not only reduced company assets, but even worse, the assets cannot cover the company's debts.

Flexibility is a ratio that measures a company's ability to make effective decisions in terms of company development related to its financial condition. If the company's financial condition is said to be unhealthy, then the decisions that will be issued by the owner of the company will be very limited, considering the limited assets currently owned. So in other words, the higher the level of flexibility of the company, the smaller the risk that will be faced by the company.

In addition to the uses of the balance sheet for users of financial statements, there are also several weaknesses in the balance sheet. Some of them are: first, almost all assets and liabilities are recorded at historical cost. As a result, the information disclosed on the balance sheet has a higher level of reliability, while the use of the fair value principle, which is considered more relevant, is not reported. Second, in determining the various items reported in the balance sheet, use judgments and estimates. And finally, in reporting a statement of financial position, there are often many items that are of financial or material value to the company but are ignored because they cannot be recorded objectively.

In compiling a statement of financial position or balance sheet, what needs to be considered is the systematic placement of items so that the relationship between these items can be seen and the level of liquidity of each item can be identified. In this case, it is necessary to classify the balance sheet so that a good balance sheet can be prepared.

The three common groups of items on the statement of financial position, or balance sheet, are assets, liabilities, and equity.

  1. Assets are the results of transactions that occurred in the past or present, assets that are fully owned and controlled by the company, and economic benefits that may be obtained in the future.
  2. Liability is the sacrifice of economic benefits, which in this case are past, present, and future assets as fulfillment of company needs.
  3. Equity is the capital that underlies the company's operational activities as the basis for funding these activities, which in the future will experience an increase or decrease due to the use and allocation of certain assets and liabilities.

Assets

The classification of assets is as follows:

  1. Assets are not current.

Non-current assets include the following items:

  • long-term investment

Long-term investments are presented on the balance sheet just below current assets. Long-term investments are usually held for many years. Long-term investments consist of the following four types of investments:

  1. Investments in securities, such as bonds, common stock, or long-term notes
  2. Investments in tangible fixed assets that are not currently used in operations, such as land held for speculation.
  3. Investments set aside in special funds, such as sinking funds, retirement funds, or factory expansion funds
  4. Investments in unconsolidated subsidiaries or affiliates
  • Property, plant, and equipment

Property, plants, and equipment are types of long-lived and durable assets that are used in the company's operational activities. These assets consist of property or physical assets such as land, buildings, machinery, equipment, and non-renewable resources. Most of these assets are also depreciable, except for land. The accumulated depreciation assessment must be disclosed as a deduction from the use value of the asset.

  • Intangible assets

Intangible assets are not included in financial instruments because they do not have physical substance. Intangible assets include patents, copyrights, franchises, goodwill, trademarks, trade names, and customer trust. In general, all intangible assets are amortized over their useful lives. Intangible assets can be the most significant economic resources owned by a company, but many companies ignore them when disclosing financial statements because their objectivity is difficult to identify.

  • Other assets

Items included in other assets include prepaid expenses such as retirement expenses, long-term receivables, deferred income tax, and restricted cash and securities. Companies should limit this section to only unusual items that are sufficiently different from assets included in special categories.

  1. Current asset

Current assets represent cash and other forms of assets that are expected to be converted into cash, sold, or allocated within one year or one accounting period, whichever is longer. The operating cycle in question starts with cash, which is realized from the sale of products originating from the use of raw materials and equipment in production activities. Current assets are presented on the balance sheet in order of liquidity. Current assets include the following posts:

  • Supply

In order to present inventories in the statement of financial position accurately, the valuation basis, which is the lower of cost or market price, and pricing methods such as FIFO, LIFO, or average cost must be fully disclosed before total accumulation.

  • Receivables

Any receivables used as collateral or in anticipation of uncollectible accounts must be clearly identified. The categories of receivables must be presented in the balance sheet or related records. whereas for receivables for unusual transactions, the company must classify them separately as long-term receivables unless they are expected to be received within one year.

  • Prepaid expenses

Prepaid expenses are expenses that have been made for benefits to be received within one year or the operating cycle. These costs are classified as current assets because if they have not been paid, then cash needs to be used during the current year or the following year. Prepaid expenses are reported at the amount of fees that are not yet due or unused. Common examples are insurance policy payments and prepaid building leases. So that costs are incurred before receiving related benefits.

  • short-term investment

Short-term investments, in this case, investments in debt and equity securities, must be reported as current assets and grouped into three classifications for separate reporting purposes.

  1. A held-to-maturity security is a type of corporate liability security that has a positive value and has the ability to be held until its maturity date.
  2. Trading securities are types of liability and capital securities that are primarily authorized and held to be sold in the near term in order to gain profits from the difference in short-term prices.
  3. Available-for-sale securities are types of liability and capital securities that cannot be classified as held-to-maturity securities or trading securities.
  • Cash

Generally, cash consists of cash and demand deposits. Cash, or in the form of this currency, are all assets that are liquid and can be reduced. Or a means of exchange that the bank can accept for deposit. Meanwhile, cash equivalents are very liquid and safe investments, so in practice, they are the same as cash. For financial reporting purposes, cash equivalents are defined as highly liquid securities with known market values and maturities. Also short-term money market securities.

  1. Capital

Owner's equity, or equity, is one of the groups that is disclosed in the balance sheet in the amount of par value authorized, issued, and outstanding. This capital, or owner's equity, can be obtained based on a capital share agreement and retained earnings from a certain period. The posts contained in the capital group are:

  • Share capital, namely the par value or set for the shares issued. Share capital includes ordinary shares and preferred shares. For both common and preferred stock, companies must disclose the par value and the value of the shares authorized, issued, and outstanding.
  • share premium, namely the excess amount paid from the amount stated on the shares or the par value.
  • Retained earnings, namely company profits that are not distributed. Retained earnings are divided into undue retained earnings, i.e., the value available to distribute dividends, and limited retained earnings, such as loan agreements.
  • accumulation of other comprehensive income, namely the total of other comprehensive income items.
  • Treasury shares, namely shares outstanding, are then bought back by the company.
  • Uncontrollable interest, namely the interests of shareholders who, when aggregated, own less than half of the shares in a company. On the consolidated balance sheets of companies whose subsidiaries are not wholly owned, it is reported as a liability.

Liability

Liability items are grouped into two categories: long-term liabilities and short-term liabilities.

  1. Long-term liabilities

Long-term liabilities are obligations that are not expected to be liquidated in the normal operating cycle but will be paid on a certain date in a period that is usually more than one accounting year. Examples of long-term liabilities include bonds payable, notes payable, some deferred income taxes, and rents payable. Long-term liabilities are classified as follows:

  • Liabilities arising from special financing situations, such as the issuance of bonds, long-term lease payables, and long-term notes payable.
  • liabilities originating from company operations, such as deferred income tax liabilities and pension obligations.
  • Obligations that depend on the occurrence or non-occurrence of an event in the future to confirm the amount to be paid or the date of settlement, such as guarantees for services or products and other contingencies.
  1. Short-term liabilities

Short-term liabilities are obligations that are expected to be liquidated through the use of current assets or the existence of other short-term liabilities. Generally, long-term liabilities are expected to be repaid within one year or one accounting cycle. The classification of short-term liabilities includes:

  • debt originating from the acquisition of goods and services, such as trade payables, payroll payables, and tax payables.
  • Bills received in advance before the goods have been delivered or services have not been provided, such as unearned rental income,
  • Other liabilities that are liquidated will be repaid in the operating cycle, such as the portion of long-term bonds that must be paid in the current year or short-term ones that come from the purchase of equipment.

IFRS does not specify the order or format in which companies present items in the statement of financial position. A statement of financial position can usually be in the form of an account form or report form. Or what is commonly known as the Skontro Form and the Staffel Form.