What is the statement of financial position?
The statement of financial position is another name for the balance sheet. It is one of the main financial statements and it reports an entity’s assets, liabilities, and the difference in their totals. The amounts reported on the statement of financial position are the amounts as of the final moment of an accounting period.
The structure of the statement of financial position is similar to the basic accounting equation. For instance, a corporation will report amounts in the following format: Assets = Liabilities + Stockholders’ Equity. A nonprofit organization’s format will be: Assets = Liabilities + Net Assets.
The statement of financial position must reflect the basic accounting principles and guidelines such as the cost, matching, and full disclosure principle. Accordingly, the statement of financial position is more meaningful when it is prepared under the accrual method of accounting.
What is stockholders’ equity?
Stockholders’ equity (also known as shareholders’ equity) is one of the three elements of a corporation’s balance sheet and the accounting equation as outlined here: assets = liabilities + stockholders’ equity.
Some view stockholders’ equity as a source (along with liabilities) of the corporation’s assets. Others think of stockholders’ equity as the owners’ residual claim after the liabilities have been paid. Stockholders’ equity is also the corporation’s total book value (which is different from the corporation’s worth or market value).
The amount of stockholders’ equity is presented in the balance sheet in the following subsections:
Paid-in capital. Generally this subsection reports the amounts that the corporation received when it issued shares of capital stock.
Retained earnings. Generally this is the cumulative earnings of the corporation minus the cumulative amount of dividends declared.
Accumulated other comprehensive income. This is the cumulative amount of income (or loss) that has not been included in the net income reported on the corporation’s income statement.
Treasury stock. This reduction of stockholders’ equity is the amounts spent by the corporation to repurchase but not retire its own shares of capital stock.
The changes which occurred in stockholders’ equity during the accounting period are reported in the corporation’s Statement of Stockholders’ Equity (one of the main financial statements).
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