statement of changes in financial position

Statement of Financial Position — Example

statement of changes in financial position

The statement of financial position, often called the balance sheet, is a financial statement that reports the assets, liabilities, and equity of a company on a given date. In other words, it lists the resources, obligations, and ownership details of a company on a specific day. You can think of this a snapshot of what the company looked at a certain time in history.

This definition is true in the sense that this statement is a historical report. It only shows the items that were present on the day of the report.

This is in contrast with other financial reports the income statement that presents company activities over a period of time.

The statement of financial position only records the company account information on the last day of an accounting period.

In this sense, investors and creditors can go back in time to see what the financial position of a company was on a given date by looking at the balance sheet.


Let’s take a look at a statement of financial position example.

As you can see from our example template, each balance sheet account is listed in the accounting equation order. This organization gives investors and creditors a clean and easy view of the company’s resources, debts, and economic position that can be used for financial analysis purposes.

Investors use this information to compare the company’s current performance with past performance to gauge the growth and health of the business. They also compare this information with other companies’ reports to decide where the opportune place is to invest their money.

Creditors, on the other hand, are not typically concerned with comparing companies in the sense of investment decision-making.

They are more concerned with the health of a business and the company’s ability to pay its loan payments.

Analyzing the leverage ratios, debt levels, and overall risk of the company gives creditors a good understanding of the risk involving in loaning a company money.

Obviously, internal management also uses the financial position statement to track and improve operations over time.

Now that we know what the purpose of this financial statement is, let’s analyze how this report is formatted in a little more detail.


The statement of financial position is formatted the accounting equation (assets = liabilities + owner’s equity). Thus, the assets are always listed first.

Assets Section

Assets are resources that the company can use to create goods or provide services and generate revenues.

There are many ways to format the assets section, but the most common size balance sheet divides the assets into two sub-categories: current and non-current.

The current assets include cash, accounts receivable, and inventory. These resources are typically consumed in the current period or within the next 12 months.

The non-current assets section includes resources with useful lives of more than 12 months. In other words, these assets last longer than one year and can be used to benefit the company beyond the current period. The most common non-current assets include property, plant, and equipment.

Liabilities Section

Liabilities are debt obligations that the company owes other companies, individuals, or institutions. These range from commercial loans, personal loans, or mortgages.

This section is typically split into two main sub-categories to show the difference between obligations that are due in the next 12 months, current liabilities, and obligations that mature in future years, long-term liabilities.

Current debt usually includes accounts payable and accrued expenses. Both of these types of debts typically become due in less than 12 months. The long-term section includes all other debts that mature more than a year into the future mortgages and long-term notes.

Equity Section

Equity consists of the ownership of the company. In other words, this measures their stake in the company and how much the shareholders or partners actually own. This section is displayed slightly different depending on the type of entity.

For example a corporation would list the common stock, preferred stock, additional paid-in capital, treasury stock, and retained earnings.

Meanwhile, a partnership would simply list the members’ capital account balances including the current earnings, contributions, and distributions.

In the world of nonprofit accounting, this section of the statement of financial position is called the net assets section because it shows the assets that the organization actually owns after all the debts have been paid off.

It’s easier to understand this concept by going back to an accounting equation example.

If we rearrange the accounting equation to state equity = assets – liabilities, we can see that the equity of a non-profit is equal to the assets less any outstanding liabilities.

Does the Balance Sheet always balance?

Notice that the balance sheet is always in balance. Just the accounting equation, the assets must always equal the sum of the liabilities and owner’s equity. This makes sense when you think about it because the company has only three ways of acquiring new assets.

It can use an asset to purchase and a new one (spend cash for something else). It can also take out a loan for a new purchase (take out a mortgage to purchase a building).

Lastly, it can take money from the owners for a purchase (sell stock to raise cash for an expansion).

All three of these business events follow the accounting equation and the double entry accounting system where both sides of the equation are always in balance.

Statement of Shareholders’ EquityCash Flow Statement


Statement of Changes in Financial Position: An Overview

statement of changes in financial position

In this article we will discuss about the Statement of Changes in Financial Position:- 1. Concept of Statement of Changes in Financial Position 2. Preparation of Statement of Changes in Financial Position 3. Significance 4. Limitation.

Concept of Statement of Changes in Financial Position:

A Statement of changes in financial position (funds statement) helps us to understands how and why a business enterprise has acquired its resources and what those resources were used for.

The objectives of funds statement are:

(1) To summarise the financing and investing activities of the entity, including the extent to which the enterprise has generated funds from operations during the period and

(2) To complete the disclosure of changes of financial position during the period.

Preparation of Statement of Changes in Financial Position:

Concept of Funds:

A statement of changes in financial position can be prepared using different concepts of funds as a basis. For instance, statement of changes in financial position may focus on changes in working capital, cash, or total financial resources of a business enterprise.

Accordingly, the preparation of the following types of statement of changes in financial position:

(1) Statement of changes in working capital, popularly known as Funds Flow Statement or Statement of Sources and Applications of funds.

(2) Statement of changes in cash popularly known as Cash Flow Statement.

(3) Statement of changes in Total Financial Resources.

Main Steps in Preparing the Statement:

In order to prepare a statement of changes in financial position on a working capital basis, it is necessary to have balance sheets at two points in time and an income statement covering that span of time.

The steps involved in preparing the statement are as follows:

1. Determine the change (increase or decrease) in working capital.

2. Determine the adjustments account to be made to net income.

3. For each non-current account on the balance sheet, establish the increase or decrease in that account. Analyse the change to decide whether it is a source (increase) or use (decrease) of working capital.

4. Be sure the total of all sources including those from operations minus the total of all uses equals the change found in working capital in step 1.

General Rules for Preparing Funds Flow Statement, Working Capital Basis:

The following general rules should be observed while preparing funds flow statement:

1. Increase in a current asset means increase (plus) in working capital.

2. Decrease in a current asset means decrease (minus) in working capital.

3. Increase in a current liability means decrease (minus) in working capital.

4. Decrease in a current liability means increase (plus) in working capital.

5. Increase in current asset and increase in current liability does not affect working capital.

6. Decrease in current asset and decrease in current liability does not affect working capital.

7. Changes in fixed (non-current) assets and fixed (non-current) liabilities affects working capital.

Significance of Statement of Changes in Financial Position —Working Capital Basis:

A better understanding and analysis of the affairs of a business enterprise requires the knowledge about the movements in assets, liabilities and capital which have taken place during the year and their consequent effect on its financial position. This information is not specifically disclosed by a profit and loss account and balance sheet but can be made available in working capital based funds flow statement.

The funds flow statement is in no way a replacement for the profit and loss account and balance sheet although the information which it contains is a selection, reclassification and summarisation of information contained in these two statements. The balance sheet gives a “snapshot” view at a point in time of the sources from which a firm has acquired its funds and the uses which the firm has made of these funds.

The equities side of the balance sheet delineates these sources, and the asset side shows the uses. The income statement is a flow statement; it explains changes that occurred in the profit and loss account by summarizing the increases (revenues) and decreases (expenses) in net profit during the accounting period.

A funds flow statement explains the changes that took place in a balance sheet account or group of accounts during the period between dates of two balance sheets “snapshots.” it shows the manner in which the operations of an enterprise have been financed and in which its financial resources have been used.

It also distinguishes the use of funds for the long-term from the short- term. For example, it distinguishes the use of funds for the purchase of new fixed assets from funds used in increasing the working capital of the company.

Thus, it provides a meaningful link between the balance sheets at the beginning and at the end of a period and profit and loss account for that period. It should be understood, however, that a funds statement does not purport to indicate the requirements of a business for capital.

The concept of working capital is in conformity with normal accrual accounting procedures. Hence, a funs flow statement the concept of net working capital fits well with other statements.

Above all, working capital is also a measure of the short-term liquidity of the firm. Therefore, an analysis of factors bringing about a change in the amount of net working capital is useful for decision-making by shareholders, creditors, lenders and management.

Limitation of Statement of Changes in Financial Position —Working Capital Basis:

The working capital concept of funds enlarges the problem of valuation because it includes inventory and prepaid items. Thus, the measurement of working capital flows is less precise than for cash.

A fund statement the working capital concept is usually a brief presentation, and many significant inter-firm transactions are not disclosed. For example, significant addition to inventories financed by short-term credits would not be shown because the two items are offset in the computation of the net change in working capital.

Furthermore, transactions not affecting working capital, such as the acquisition of plant and equipment by the issuance of equity capital, would not be included in the statement.

Therefore, the funds statement in this presentation would not disclose structural changes in the financial relationships in the firm or major changes in policy regarding investments in current assets and short-term financing.


The Balance Sheets of H Ltd. are given below for the year 2006 and 2007:

Additional Information:

(i) During the year 2007 fixed assets value at Rs. 20,000 (accumulated depreciation Rs. 60,000) was sold for Rs. 16,000.

(ii) The proposed dividend of last year was paid during 2007.

(iii) During the year 2007, investments costing Rs. 1,60,000 were sold and later in the year investments of the same cost were purchased.

(iv) Debentures were redeemed at a premium of 10%.

(v) Liability for taxation for 2006 came to Rs. 1,10,000.

(vi) During the year 2007, bad debts written off were Rs. 30,000 against the provision amount.


(i) A Statement of Changes in Working Capital

(ii) And Statement of Changes in Financial Position.


Statement of Changes in Financial Position SCFP Defined Explained

statement of changes in financial position
Home > Encyclopedia > C > Cash Flow Statement

Business Encyclopedia ISBN 978-1929500109 © 2020 Solution Matrix Ltd All Rights Reserved

Un the other mandatory reports, the Statement of changes in financial position includes only items representing actual cash flow. The SCFP is in fact rightly called the «Cash flow statement.»

The Statement of changes in financial position (SCFP) is one of the four primary financial accounting statements that public companies publish quarterly and annually.

The SCFP is unique among these statements, in that it focuses solely on the period's cash inflows and outflows.

As a result, the SCFP is sometimes better known as the firm's Cash Flow Statement.

SCFP Structure

The statement lists cash flow items in two main sections:

  • Firstly, Sources of Cash. These are the period's cash inflows.
  • Secondly, Uses of Cash. These are the period's cash outflows.

In this way, the SCFP accounts for the difference between the firm's current cash position and its position after the previous reporting period. On the statement, that difference appears as the difference between two main sections totals:

Sources of Cash – Uses of Cash
        = Increase (Decrease) in cash for the period

SCFP: A Bridge Between Financial Statements

Examples in the following sections show how the SCFP serves in this way as a bridge between the other three mandatory reporting statements: the Income Statement, the Balance sheet, and the Retained Earnings Statement.

  • The SCFP, for instance, uses Income statement figures to show why the current Balance sheet Assets and Liabilities sections differ from the same parts of the previous period's Balance sheet. 
  • Figures from the SCFP also impact dividend payments and retained earnings figures.

Note that government organizations and some firms (e.g., IBM)  call their Balance sheet a Statement of financial position.This Balance sheet name helps explain why the primary name for the Cash flow statement is Statement of Changes in Financial Position.

Financial Cash Flow Statement Explained in Context

Sections below further explain and illustrate the Statement of Changes in Financial Position (SCFP) role in accounting and business analysis, focusing on three themes:

  • First, definition, structure, and contents of the SCFP, and why the SCFP became mandatory for public companies relatively recently.
  • Second, the meaning of SCFP cash flow metrics, and why the SCFP explains how the previous Balance Sheet changed into the Current Balance Sheet.
  • Third, use of the SCFP in cash flow management.

The SCFP, or cash flow statement, was the last of the four primary financial accounting statements to become mandatory. It was not required in the United States, for instance, until 1988. As a relatively young document, there is still some controversy within and between accounting standards boards regarding the handling of specific accounts on the SCFP.

There is also some controversy as to whether it is better called a cash flow statement, SCFP, or something else. Note that the SCFP has at least five commonly used names:

  • «Statement of Changes in Financial Position»
  • «SCFP»
  • «Cash Flow Statement»
  • «Funds Flow Statement»
  • «Statement of Sources Uses»

In financial accounting, these names all refer to the same reporting instrument, the subject of this article. For more on the cash flow statement for business caseanalysis, however, see «Cash flow statement for the business case.»

Business firms must manage revenues, and expenses, on the one hand, and cash inflows and outflows on the other. Most firms use accrual accounting, by which they report revenues when they earn them along with the expenses that brought them. However, the resulting cash inflows and outflows may or may not, in fact, occur in the same period.

For firms using accrual accounting:

The timing and management of revenues and expenses are critical for reporting earnings, determining taxes, and declaring dividends.

The timing and management of cash flow are critical for meeting short-term obligations and needs: Employee wages, interest on loans or bonds, infrastructure upkeep, or investing in product development, for instance.

The SCFP Enables Effective Cash Flow Management

Tax authorities also allow reporting of non-cash expenses on the Income statement. These are charges against earnings solely to lower reported Income (thereby lowering taxes). They do not represent actual cash flow. The best known non-cash expense on the Income statement is depreciation expense, while others include amortization and writing off bad debts.

The SCFP, un the Income statement, includes only actual cash flow items. When a firm buys an asset with cash, for instance, the full transaction impact registers on the current SCFP.

The Income statement, by contrast, reflects the asset purchase only through depreciation expense.

This difference suggests the reason the SCFP has become mandatory in financial reporting: The Cash flow statement enables effective cash management

In any case, the SCFP reports real cash flow changes during the period, structured around this equation:

Cash increase or decrease = «Sources of cash» – «Uses of cash.»

The example SCFP statements below are tied to the other statement examples in this encyclopedia for the Income statement, Balance sheet, and Statement of retained earnings. These four interrelated reports together represent the central financial reporting system for a company.

Exhibit 1 below is a simple, high-level example showing the simple structure of this statement. For more detail, see Exhibit 2, further below, for more of the line items possible in the SCFP.

SCFP Simple (High Level) Example Statement

Exhibit 1. Simple example Statement of Changes in Financial Position (SCFP).

Exhibit 2 below, includes more line items and detail than Exhibit 1. This version shows how Expense totals from the Income statement are adjusted to represent real cash flow. Here, Income statement non-cash expenses are «added back.»

Exhibit 2. Detailed example Statement of Changes in Financial Position (SCFP).

The values on the SCFP that represent accounts track to the company's other financial statements, the Income statement, the Balance sheet, and statement or retained earnings. 

  • Most revenue and expense items under «Sources of cash» come directly from the Income statement, for example, Sales revenues, Operating expenses, and the depreciation expense items. The Sources of Cash section of the SCFP, in fact, looks almost a little Income statement—but with a significant difference.
    • Both the Income statement and the SCFP Sources of Cash section start with «Sales Revenues,» and then subtract «Cost of goods sold,» «Operating expenses,» «Interest expense,» and «Income tax expense.» However, the SCFP adds back as positive cash inflows, any depreciation expenses that were part of operating expenses or cost of goods sold. 
  • Depreciation expenses are non-cash expenses—an accounting convention for adjusting reported income on the Income statement, but not real cash flow. Hence, the SCFP adds them back to get Total cash inflows for the period.
  • On the other hand, if the company has used cash during the period to purchase assets or stock shares, the SCFP entries help explain the difference between the last period's asset accounts and this period's asset accounts on the Balance sheet.
  • If the company used cash this period to repay debt, the SCFP entries under «Uses of cash» explain the difference between the last period's liability accounts and this period's liabilities on the Balance sheet.
  • If the company used profits to pay cash dividends to shareholders, the SCFP helps explain the source of dividend payments on the Statement of Retained Earnings.

For more on other significant financial reporting statements see

  • Income Statement
  • Statement of Retained Earnings
  • Balance Sheet

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Statement of Financial Position (Definition)| Format & Examples

statement of changes in financial position

Statement of Financial Position also known as the Balance sheet gives the understanding to its users about the financial status of the business at the particular point of time by showing the details of the assets of the company along with its liabilities and owner’s capital.

It is one of the most important financial statements which reports the firm’s financial position at a point in time. In other words, it summaries’ business financial position and acts as a snapshot of events at one point in time.  It comprises of three important elements (explained in detail later) namely:

The Fundamental Accounting Equation (also known as the Balance Sheet Equation) through which transactions are measured equates:

Assets= Liabilities + Shareholder’s Equity

Financial Position Statement Example

Let’s take a look at an example of Starbucks as on September 30, 2018

source: Starbucks SEC Filings

Effectively the above example consists of two lists:

  •  A list of everything owned by the Business collectively called Assets
  • A list of the various sources of finance used to fund these acquisitions which can be either in the form of Liabilities or Shareholders’ Equity.

Thus, it is a statement showing the nature and amount of a business’s assets on one side and liabilities and Share Capital on the other side. In other words, the Balance Sheet shows the financial position on a particular date, which is usually at the end of a year period.

The Statement of Financial Position shows how the money has been made available to the business of the company and how the money is employed in the business.

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The format of the Financial Position Statement

Let’s understand the format of the Statement of Financial Position in more detail

#1 – Current Asset

Current Assets are those cash and items which will be converted into cash in the normal course of business within one year and includes Inventory, Trade Receivables, Bill receivable, etc. The Total Current Assets are referred to as the Gross Working Capital and also known as the qualitative or circulating capital.

#2 – Current Liabilities

Current includes all liabilities which are due within one year and includes Trade Payables, Creditors, short term borrowings such as Bills Payable, Deferred Tax Liabilities, Current Portion of Long term Borrowings, which are payable within the year, etc.

#2 – Long Term Asset

Non-Current Assets, also known as Fixed Assets are those assets which are bought to use them in the business and usually have long lives.

They may include tangible assets such as Land, Property, Machines, and Vehicles, etc. Tangible Non-Current Assets are generally valued at Cost less Accumulated Depreciation.

However, it is pertinent to note that not all Tangible Assets depreciate, such as Land, etc.

  • Intangible Non-Current Assets are noncurrent assets that cannot be touched. The most common type of Intangible Assets is Goodwill, Patents, and Trademarks. Goodwill is subject to an Annual Impairment Test.
  • Non-Current Assets include investment in other companies in the form of Shares, Debentures, and loans, etc. and the business intends to hold the same for a reasonable period, say more than a year.

#4 – Long Term Liabilities

Non-Current Liabilities include Long term borrowings that are not due within one year. It includes finance leases, medium-term bank loans, Bonds and Debentures and also includes contingent liabilities such as Guarantees, etc.

#5 – Shareholders Equity

Shareholders Equity is the amount contributed by the shareholders/owners of the business in the form of shares. Alternatively, Shareholders Equity is the Net value of the business, which is derived by subtracting Assets from Liabilities.

Briefly Equity comprises of:

  • Common Stock
  • Retained Earnings which includes the number of profits retained by the business;


We saw how a Statement of Financial Position depicts the position of the business on a particular date. However, despite so many benefits that it offers to various stakeholders of the business, it suffers from certain limitations which are as enumerated below:

  • This statement is prepared going concern assumption and, as such, represents neither the realizable Value nor replacement value of Assets.
  • Valuation of Assets is substantially impacted by the judgment of Management and various accounting policies adopted by them.
  • It takes into consideration only financial factors and fails to quantity non-financial factors that have considerable bearing on the operating results and financial condition of an Enterprise.
  • It shows the historical costs and does not disclose the current worth of the business.

This article has been a guide to What is Statement of Financial Position. Here we discuss the format of Financial Position Statement along with practical examples and limitations. You may also have a look at the related articles:

  • Banks Balance Sheet
  • What is Deferred Tax Assets?
  • Top Financial Ratios


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