The second main statement your software will report is a Statement of Financial Position, formerly known as the “Balance Sheet.” While a Statement of Financial Performance provides the answer to how much you have made between the start and finish dates you have selected, a Statement of Financial Position is a snapshot of the financial status of your business on any given day. Essentially, this report tells you how much you own as a shareholder of the business.

A Statement of Financial Position uses the other three major accounts: what you have (assets), what you owe (liabilities), and the difference between the two (your equity in the business). It’s that simple!

If you are making money, each time you look at the Statement of Financial Position, your equity should be greater. Current Year Earnings is the equity sub-account (also known as profit) that shows the current position of equity in the business. It is not an account you can enter data into – the figure in this account increases or decreases automatically based on the outcome of income minus expenses at the time.

Current Year Earnings is the shared account between the two statements, Financial Position and Financial Performance.

The formula for a Balance Sheet is:

EQUITY (What you own) = ASSETS (What you’ve got) – LIABILITIES (What you owe)

When you do this equation, the equity will hopefully be positive, and this will give you the equity (or ownership) in the business. If equity is less than zero, technically you are trading insolvent, and it is illegal to take goods on credit or further loans.