The statement of financial position (SOP)used to be called the balance sheet. Although the name of this report has changed in the nonprofit world to (SOP), the concept and the equation are essentially the same as any business balance sheet or statement of personal net worth.
Assets (what you have or what you are owed) minus Liabilities (what you owe to others) equals Net Assets (what’s left over)
The Statement reflects the overall financial soundness of your organization at a given moment in time in terms of liquidity risk, credit and business risk. It is the report that shows the accumulated results of all the individual years of your organization’s operations put together. It is important to learn how to read and understand your organization’s SOP report.
Also referred to as the Statement of the business net worth, it consists of the following key elements:
An asset is something that an entity owns or controls in order to derive economic benefits from its use. Assets are classified in the balance sheet as current or non-current depending on the duration over which the reporting entity expects to derive economic benefit from its use. An asset which will deliver economic benefits to the entity over the long term is classified as non-current whereas those assets that are expected to be realized within one year from the reporting date are classified as current assets.
Assets are also classified in the statement of financial position on the basis of their nature:
A liability is an obligation that a business owes to someone and its settlement involves the transfer of cash or other resources. Liabilities must be classified in the statement as current or non-current depending on the duration over which the entity intends to settle the liability. A liability which will be settled over the long term is classified as non-current whereas those liabilities that are expected to be settled within one year from the reporting date are classified as current liabilities.
Liabilities are also classified in the statement of financial position on the basis of their nature:
This is what the business owes to its owners. Equity is derived by deducting total liabilities from the total assets. It therefore represents the residual interest in the business that belongs to the owners.
Equity is usually presented in the (S.O.P) under the following categories:
Return from statement of financial position to bookkeeping