Statement Of Financial Position Flashcards
Purpose & Use
A statement of financial position is a snapshot of a business’s net worth usually at the end of a financial year
It’s a summary of the business’s assets and liabilities
It therefore states the value of a business
Assets
Everything that the business owns
Liabilities
Everything that the business owes
Net Assets
The first half of the balance sheet calculates the net assets
This is the worth of the business
The total assets and total liabilities subtracted
Net Assets Formula
Net Assets = (Total Non-Current Assets + Total Current Assets) - (Total Current Liabilities + Total Non-Current Liabilities)
Non-Current Assets
Non-current assets items of value that are owned by the business and likely to stay within the business long term
These can be tangible (can be touched e.g. machine or premises) or intangible (can’t be touched e.g. the trademark or loyal customer base)
Tangible assets depreciate yearly and this is shown on the statement of financial position
Current Assets
Current assets are items of value owned by a business whose value is likely to fluctuate on a regular basis
Every time the business makes a transaction, the value of its current assets will fluctuate
They are listed in order of how easy it is to turn them into cash quickly
E.g. inventories, prepayments, trade receivables, cash in the bank, cash in hand
Inventory
The value of stock held at that moment in time
E.g. raw materials, work in progress and finished goods
Trade Receivables
People who owe the business money
Although the business does not yet physically have the money, it is owned by the business
Current Liabilities
A current liability is something owed by the business that should be paid back within a year
- Overdrafts: money withdrawn from a current account that you do not have
- Accruals: when an expense is paid after the period to which it relates
- Trade Payables: people or businesses the business owes money to because it has received a good or service but has not yet paid for it
Net Current Assets / Liabilities
Net current assets / liabilities represents the businesses ability to meet short-term debts
To have net current assets the current assets are greater than current liabilities
To have net current liabilities the current assets are less than current liabilities
Net Current Assets / Liabilities Formula
Net Current Assets / Liabilities = Current Assets - Current Liabilities
Non-Current Liabilities
A non-current liability is something that the business owes and will pay back in more than one year
E.g. bank loans and mortgages
These are likely to be used to buy fixed assets or to set up the business initially
Capital
The second half of the statement of financial position then asks how this has been financed
This shows the capital employed: how much has been put to use in an investment
Capital Employed Formula
Capital Employed = Owners Capital + Retained Profits - Drawings
Capital Employed = Total Assets - Current Liabilities
