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CHAPTER 2
MEASURING AND REPORTING FINANCIAL POSITION
THE STATEMENT OF FINANCIAL POSITION
We saw a little earlier that this statement shows the forms in which the wealth of a business
is held and how much wealth is held in each form. We can, however, be more specific about
the nature of this statement by saying that it sets out the
assets
of a business, on the one
hand, and the
claims
against the business, on the other. Before looking at the statement of
financial position in more detail, we need to be clear about what these terms mean.
Assets
An asset is essentially a resource held by a business. To qualify as an asset for inclusion in the
statement of financial position, however, a resource must possess the following characteristics:
■
It must be an economic resource
. This type of resource provides a right to potential eco-
nomic benefits. These benefits must not, however, be equally available to others. Take, for
example, what economists refer to as
public goods.
These include resources such as the
road system, GPS satellites or official statistics. Although
these may provide economic
benefits
to a business, others can receive the same benefits at no great cost.
A public
good cannot, therefore, be regarded as an asset of a business. Economic benefits flowing
from a resource can take various forms depending on how it is used by a business. Note
that an economic resource need only have the
potential
to generate benefits. They need
not be certain or even probable.
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