make decisions based on simple statements of financial position

📊 Think of a statement of financial position as a snapshot of a company’s “balance” at a specific date. It shows what the company owns (assets), what it owes (liabilities), and the owners’ share (equity). Just like a seesaw, the total assets must equal the total of liabilities plus equity.

• 💰 Current assets – Cash, inventory, and receivables that can be turned into cash within a year.
• 🏢 Non‑current assets – Property, plant, equipment, and intangible assets that last longer than a year.

1. 💸 Current liabilities – Bills, loans, and payables due within a year.
2. 🏦 Non‑current liabilities – Long‑term loans and bonds that are paid after more than a year.

📈 Equity represents the residual interest after liabilities are deducted from assets. It includes share capital, retained earnings, and any reserves. Think of it as the “net worth” of the business.

1️⃣ Liquidity check – Compare current assets to current liabilities. Formula: Current ratio = Current assets ÷ Current liabilities = $25,000 ÷ $10,000 = 2.5 (good if >1). 2️⃣ Leverage analysis – Total debt ÷ Total equity = $16,000 ÷ $15,000 ≈ 1.07. 3️⃣ Profitability hint – Higher equity suggests stronger capacity to invest and grow.

• ?? Remember the accounting equation: $Assets = Liabilities + Equity$.
• ?? Check the matching principle: Assets should be matched with the period in which they generate revenue.
• ?? Practice with sample statements: Identify each element and calculate ratios.
• ?? Use the “balance” analogy: It helps to visualise why assets must equal liabilities plus equity.