statement-of-financial-position

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The purpose of the statement of financial position

The statement of financial position provides a snapshot of a business’s financial position at a given point in time
- It is often called the balance sheet
It shows what the business owns (assets), what it owes (liabilities), and how it is funded (capital and reserves)
It contains the financial information required to draw conclusions about the liquidity of the business

The structure of the statement of financial position

The statement of financial position details the following elements at a specific point in time

Assets
Non-current assets are items owned by a business for the long-term, such as machinery and buildings Current assets are items that a business owns that can be converted to cash quickly , usually within 12 months, comprised of inventory, trade receivables and cash Total assets = Non-current assets + Current assets

Liabilities
Current liabilities is money a business owes that is due to be settled within 12 months, including trade payables and short-term borrowing, such as overdrafts Non-current liabilities is money a business owes, such as a loan or mortgage, that does not need to be paid back for at least 12 months Net current assets = Current assets – Current liabilities Net assets is a calculation of the value of a business, calculated using the formula $left parenthesis Non minus current space assets space plus space Current space assets right parenthesis space minus space left parenthesis Current space liabilities space plus space Non minus current space liabilities right parenthesis$

Liabilities

Current liabilities is money a business owes that is due to be settled within 12 months, including trade payables and short-term borrowing, such as overdrafts
Non-current liabilities is money a business owes, such as a loan or mortgage, that does not need to be paid back for at least 12 months
Net current assets = Current assets – Current liabilities
Net assets is a calculation of the value of a business, calculated using the formula

$left parenthesis Non minus current space assets space plus space Current space assets right parenthesis space minus space left parenthesis Current space liabilities space plus space Non minus current space liabilities right parenthesis$

Capital structure
Equity (or owners’ capital) is money invested in the business by its owner(s) Profit for the year is the profit after tax generated in the last financial year Capital employed is the total finance invested in the operations of a business

A statement of financial position showing key elements

Balance sheet for PriceWise Sports Ltd as of 31 December 2024, showing non-current assets, current assets, liabilities, and capital employed. — **The statement of financial position (balance sheet) shows a business’s assets, liabilities and capital structure at a point in time**

In this example, drawings refers to the money (capital) removed from the business by its owner(s)

Amending the statement of financial position

A change to one section of the statement of financial position has an impact on other sections

Worked Example

Pershore Plumbers Ltd’s accountant has sent the interim statement of financial position to Helen, the business owner. She has been asked to check the statement before it is sent to Companies House

Pershore Plumbers Ltd – Statement of financial position at 31st March 2025

Financial statement showing assets, liabilities, and equity. Non-current assets: £21,400; Current assets: £85,140; Equity: £166,290; Total liabilities: £40,150.

Helen identifies three errors

Depreciation was £24,100
An inventory check on 31st March 2025 valued stock at £26,400
Long-term borrowing increased to £25,000 as the business took out a further small loan

Recalculate the statement of financial position to reflect these changes.

(6)

Step 1: Update non-current liabilities given the change to depreciation

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