Hi.

[INAUDIBLE] here.

And in this video, we'll be exploring

the Statement of Financial Position under IFRS.

Before we move forward, though, let's review.

Public corporations in Canada use IFRS, International

Financial Reporting Standards.

IFRS requires them to produce five statements-- the Income

Statement, Statement of Comprehensive Income,

Statement of Changes in Equity, Statement

of Financial Position, and Statement of Cash Flows.

Today we'll focus on the Statement of Financial

Position, but let's review the previous statements

and the interconnection.

The first financial statement produced

is the Income Statement.

This statement measures a company's performance.

The profit or loss from the Income Statement

is used in multiple other statements.

But right now, let's focus on the fact

that the profit or loss is carried forward

to the Statement of Comprehensive Income.

This statement adds or deducts unrealized gains or losses

to provide a broader definition of a company's performance, one

that includes both realized and unrealized amounts.

The unrealized gains or losses on the Statement

of Comprehensive Income are then carried forward

to the Statement of Changes in Equity.

This statement reports how profits, dividends, shares,

and other items have affected shareholders' equity.

Remember I said that the profit or loss from the Income

Statement is used in multiple other statements?

You saw that it was used as the opening number in the Statement

of Comprehensive Income.

Here, it's used in the Retained Earnings column.

The ending balances from the Statement of Changes in Equity

are then transferred to the Statement of Financial

Position, the subject of this video.

The Statement of Financial Position

summarizes the assets owned, the liabilities owed,

and the equity investment by the shareholders.

This statement shows the financial health

of a company at a specific point in time.

In order to understand the Statement of Financial

Position, we have to first understand

the elements that make up this statement-- assets,

liabilities, and equity.

Let's look at each individually.

Everything that a company owns or controls

is considered an asset, a resource the company will

use in the future.

When you look at the assets, you answer the question,

what does the company have that they will use in the future

to help run the business?

Assets are divided into two categories--

current and non-current or long-term.

Why?

Financial statements are all about communicating

useful information to decision-makers

by grouping assets based on their characteristics,

in this case how fast they are used or converted into cash.

Users obtain a better understanding of the company's

financial position and health.

Let's define those two categories of assets.

Current assets are any assets that

will be converted into cash, sold,

or consumed within one year or operating cycle,

whichever is longer.

A few of the more common accounts

found in this grouping our things

like cash and prepaid expenses.

Non-current assets are any assets

that do not meet the definition of a current asset.

These are resources that will be converted into cash,

sold, or used up over more than one year.

They're divided into five subcategories--

long-term investments; property, plant, and equipment;

intangible assets; goodwill; and other assets.

In order to better understand the accounts that

go into current and non-current assets,

I suggest you check out the Financial Statement Element

video which lists, defines, and describes

all the different accounts under each category.

How do companies get their assets?

They use liabilities.

Companies take on debt and owe third parties either money,

goods, or services.

Like assets, liabilities are divided

into current and non-current, again to provide information

to users so they can make decisions.

Current liabilities are obligations

that will be satisfied in one year or operating cycle,

whichever is longer.

Current liabilities include accounts such as accounts

payable and unearned revenue.

Non-current, or long-term liabilities,

are debts that will be satisfied beyond one year or operating

cycle, whichever is longer.

Accounts included in this subcategory

almost always have the word payable as part of the account

name.

Again, to learn more, check out the Financial Statement

Elements video which lists, defines,

and describes all the different accounts under each category.

We already defined the element equity

when you completed the Statement of Changes in Equity.

Equity is the financing by owners.

Recall that it's made up of share capital,

retained earnings, and accumulated

other comprehensive income.

It answers the question, what part of the business

is financed by the owners?

Let's just review the three items quickly.

Share capital represents the amount received in exchange

for company's shares.

This is a direct investment by the shareholders

because shareholders choose to invest in the company

by buying shares.

Next, the indirect investment called retained earnings.

Retained earnings is increased by profit

and decreased by dividends paid out

to shareholders, as well as losses

from the Income Statement.

The profit is kept in the business

to help them grow in the future.

Finally, accumulated other comprehensive income.

This is the total of all unrealized gains and losses

from the Statement of Comprehensive Income

since the company began.

This amount is increased by unrealized gains

and decreased by unrealized losses.

Let's do a quick check of your understanding so far.

The right to receive money in the future from a customer

is an.

Asset called accounts receivable.

It is an asset because it will be converted

into cash in the future, and it has future economic benefit

for the company because it brings in cash.

Now that we understand the elements that make up

the Statement of Financial Position,

we can look at an example.

Note that the statement is so large

that I've divided it into sections so

that you can see them better.

As always, the statement starts with the heading,

which must include the company name and the title

of the financial statement.

One change from previous statements-- the Statement

of Financial Position is at a point in time,

not a period of time.

Why?

Because every time a company has another transaction,

their financial position changes.

For example, if you have $10 in your pocket

and then you buy a Timmy's, your financial position has changed.

That's why the Statement of Financial Position

is a snapshot, one second in time.

The title of the statement reflects that.

In this demonstration video, I've

followed the common North American

practice of listing current items before non-current items.

This is called order of liquidity.

The order is current assets before

non-current and current liabilities

before non-current liabilities.

Although I have set up the statement in columns

for easy viewing, the accounts can all

be listed in one column and the amounts in another.

Here you see the details of the Current Asset section.

Notice that the assets are listed in order of liquidity.

The faster I convert them into cash, sell, or use them,

the higher they are on the list.

Note that there is a subtotal called total current assets.

The next section is the Non-current Assets.

I have listed them from long-term investment

to goodwill.

Notice, if there is only one item in the section,

there is no subtotal necessary.

Intangibles and goodwill are examples of this.

If there are more than one item listed under a heading,

as there is for long-term investments and property,

plant, and equipment, there must be a subtotal.

The next section is called Liabilities

and Shareholders' Equity.

I've started with current liabilities

and provided a subtotal before moving on

to non-current liabilities.

Note, each section has its own subtotal,

and then total liabilities is provided at the bottom.

The accounts within current and non-current liabilities

are an order of when they will be settled.

The earlier they're settled, the higher they are on the listing.

The final section is Shareholders' Equity.

Notice that the order of shareholders' equity items--

common shares, retained earnings, and accumulated

other comprehensive income--

are the same as the order of the columns in the Statement

of Changes in Equity.

There is a subtotal for shareholders' equity

before total liabilities and shareholders' equity

is provided.

Notice something really important.

Total assets are equal to total liabilities

plus shareholders' equity.

This is called the accounting equation.

This equation shows that economic resources--

that's our assets-- are financed either through debt

or liabilities or equity from shareholders.

This equation will be explored in a later video.

For now, it's important to recognize

that in the Statement of Financial

Position assets always equals liabilities

plus shareholders' equity.

Let's check your understanding.

Shareholders' equity is always placed

after liabilities on the Statement of Financial Position

under IFRS.

You likely said true, but the correct answer

is actually false.

IFRS allows choice with regards to the order of the categories

on the Statement of Financial Position.

It's common in North America to use

order of liquidity, which is what

I've used in the statements I demonstrated.

More common for international and European corporations

is reverse liquidity order.

On these statements, non-current assets

are listed first, then current assets.

In addition, shareholders' equity is actually

listed before liabilities, and liabilities

are in reverse order, meaning that it's

non-current liabilities before current liabilities.

Within each category, the accounts

are also listed in reverse order.

That means that under current assets

cash would be last, not first.

It's important to understand that IFRS provides choice.

But for purposes of these videos,

we'll continue to use order of liquidity,

which is most common in North American companies.

So what questions does the Statement of Financial Position

answer?

For investors, it shows that the company

can repay its current and non-current debt

as they come due.

For creditors, it indicates if there's

enough assets to operate.

If they can't operate, is there enough assets

to cover outstanding debts when they're sold?

Does the company have enough cash

to pay its debts as they come due?

Considering current debt levels, should we lend them more money?

For both investors and lenders, it

answers the question, what does the company use, debt or equity

financing?

The Statement of Financial Position

is not the last financial statement

we're going to complete.

The numbers from this statement, particularly the amount