Statement-Of-Financial-Position Igcse Edexcel

Statement of financial position for sole traders

What is the statement of financial position?

• The statement of financial position is one of the financial statements of a sole trader business

• It shows the position of the business in terms of its assets, liabilities and equity at a particular date

  • It provides a snapshot of the business on a particular date

• The statement of financial position is split into two halves

  • The assets are listed in the first half

  • The equity and liabilities are listed in the second half

  • The totals for each half will be equal

• The statement of financial position is prepared in exactly the same way for a trading and a service business

• The figures used to prepare the statement of financial position will be taken from the trial balance or list of balances

  • Additional information will be given after the trial balance

  • This is where the valuation of the closing inventory is given

• The statement of the financial position is prepared after the income statement

  • The profit or loss for the year will increase or decrease the equity

• The statement of financial position is not part of the double entry system

  • The balances of the accounts are stated on the statement

  • They are not transferred to the statement 

What is the layout for the assets section?

• The non-current assets are listed first

  • Three values are stated for each non-current asset in separate columns in the following order:

    • Cost

    • Accumulated depreciation

    • Carrying value

  • The total for each column is calculated

    • The total for the carrying value column is the total value for the non-current assets

• The current assets are listed after the non-current assets

  • The values for the current assets are listed in the middle column

    • If there is a provision for irrecoverable debts then the far left column is used to subtract its balance from the trade receivables

    • The total is put in the far right column

• The total assets value is found by adding the total non-current assets and the total current assets

• It is conventional to list the assets within each section in order of their liquidity

  • Starting with the least liquid assets

How do I complete the equity and liabilities section?

• Firstly, calculate the equity in the far right column

  • Start with the opening equity from the beginning of the financial year

  • Add any additional equity introduced during the year

  • Add (or subtract) the profit (or loss) for the year

  • Subtract any drawings

  • This gives the total equity at that date

• Secondly, list the non-current liabilities

  • If there is just one item then put it in the far right column

  • Otherwise, list them in the middle column and put the total in the far right column

• Thirdly, list the current liabilities

  • List them in the middle column and put the total in the far right column

• Finally, calculate the total equity and liabilities by adding together:

  • The equity

  • The total non-current liabilities

  • The total current liabilities