What is a Statement of Condition?
A statement of condition is a document that functions as summary of the overall financial condition of a business or other entity. The statement is usually divided into two sections, making it relatively easy to compare the current assets owned with the amount of any outstanding liabilities. In many ways, the statement of condition looks very much like a standard balance sheet kept in accounting records, and is sometimes considered to be nothing more than a slightly different version of a balance sheet.
The purpose of a statement of condition is to create a proactive document that makes it possible to quickly ascertain the net worth of the company or organization. In order to accomplish this task, the first part of the document will focus on all currently owned assets. This includes various types of real estate, including office buildings, manufacturing facilities, or even undeveloped land. Other assets such as securities and cash balances in various accounts are also listed. Essentially, any asset that can be converted into cash with relative ease is included in the inventory of productive assets.
In the second part of a statement of condition, all outstanding liabilities are listed. This can include any mortgages, business loans, shareholders' equity, or any other type of liability that the entity is responsible for repaying at some point in the future. Once a complete roster of liabilities is created, it is an easy task to compare the amount of the assets to that of the liabilities, and determine the net worth of the organization.
A statement of condition is sometimes required when a business is seeking a loan of some type, or when there is discussion of an acquisition or merger with another company. Each line item contained within the statement is backed up by documentation found in the accounting records maintained by the organization, making it very easy to double check any figure listed among the assets or liabilities. In this sense, the statement of condition serves the same purpose as a balance sheet.
Some businesses will compile a statement of condition periodically as a means of obtaining a quick snapshot of the current financial condition of the company. By reviewing the breakdown of assets and comparing them to the liabilities, business owners can determine if the company seems to be losing ground, maintaining its status, or undergoing a period of growth. In the event that the detail included on the statement indicates that the business is stagnant or is beginning to post a decrease in net worth, reviewing the information makes it possible to begin brainstorming ideas on how to improve that condition during the upcoming accounting period.
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