The statement of financial position

The statement of financial position (balance sheet) is a snapshot of assets, liabilities and equity at one date. It always satisfies the accounting equation — assets = liabilities + equity — because every entry posted to the ledger kept that equation in balance.

Current or non-current? IAS 1 requires a current/non-current split (unless a liquidity order is more relevant, as for banks). - An asset is current if the entity expects to realise, sell or consume it within its normal operating cycle, holds it mainly for trading, expects to realise it within twelve months, or it is cash. Cash, receivables, inventory and prepayments are typical. Everything else — equipment, intangible assets, long-term investments — is non-current. - A liability is current if it is due to be settled within twelve months, is held for trading, is settled in the normal operating cycle, or the entity does not have the right at the reporting date to defer settlement for at least twelve months. Intentions don't matter: what counts is the right that exists at the reporting date.

Presentation points that catch people out - Contra accounts are netted: receivables are shown less the allowance for credit losses; equipment less accumulated depreciation. The gross figures go in the notes. - A long-term loan's current portion — the instalments due in the next twelve months — is a current liability. The rest stays non-current. - Loan covenants: if a covenant is breached on or before the reporting date and the loan becomes repayable on demand, it is current — even if the lender agrees after the year end not to demand repayment. Only a waiver obtained by the reporting date, giving at least twelve months' grace, keeps it non-current. Covenants that are tested only after the reporting date don't affect classification at all — they are disclosed instead. (US GAAP differs here: a waiver for more than a year obtained after the balance sheet date but before the statements are issued can keep the loan non-current. The liabilities track compares the two.) - Dividends declared before the year end and unpaid are a liability (dividends payable). A dividend proposed or declared after the reporting date is not a liability at that date (IAS 10); it is disclosed in the notes. - Customer deposits for goods or services still to be delivered are liabilities (unearned revenue or contract liabilities), not revenue.

Equity is the residual: assets minus liabilities. It is split into share capital (and premium), retained earnings and other reserves.