Components of financial statements – statement of financial position
A statement of financial position, or balance sheet, considers key financial information that allows a business to monitor where the money comes from and where is has been spent, along with the overall value of a business. This document is often referred to as a ‘balance sheet’. A statement of financial position is a snapshot in time, so it can only consider business performance and value at a particular point in time. The statement of financial position has a number of important business calculations. The overall aim of a balance sheet is to get the assets and capital employed to match, thus balancing the sheet.
| Statement of financial position | £ | Totals £ |
| Fixed Assets | ||
| Shop | 200,000 | |
| Vehicles | 50,000 | |
| 250,000 | ||
| Current Assets | ||
| Inventory | 10,000 | |
| Cash | 50,000 | |
| 60,000 | ||
| Current Liabilities | ||
| Trade Credit | 20,000 | |
| Net Current Assets/Working Capital | 40,000 | |
| Net Assets | 290,000 | |
| Financed by | ||
| Equity and reserves | ||
| Share Capital | 20,000 | |
| Retained Profit | 10,000 | |
| Long Term Liabilities | ||
| Bank Loan | 190,000 | |
| Mortgage | 70,000 | |
| Capital Employed | 290,000 |
| Statement of financial position | Fixed Assets |
|---|---|
| £ | |
| Totals £ |
| Statement of financial position | Shop |
|---|---|
| £ | 200,000 |
| Totals £ |
| Statement of financial position | Vehicles |
|---|---|
| £ | 50,000 |
| Totals £ |
| Statement of financial position | |
|---|---|
| £ | |
| Totals £ | 250,000 |
| Statement of financial position | Current Assets |
|---|---|
| £ | |
| Totals £ |
| Statement of financial position | Inventory |
|---|---|
| £ | 10,000 |
| Totals £ |
| Statement of financial position | Cash |
|---|---|
| £ | 50,000 |
| Totals £ |
| Statement of financial position | |
|---|---|
| £ | |
| Totals £ | 60,000 |
| Statement of financial position | Current Liabilities |
|---|---|
| £ | |
| Totals £ |
| Statement of financial position | Trade Credit |
|---|---|
| £ | 20,000 |
| Totals £ |
| Statement of financial position | Net Current Assets/Working Capital |
|---|---|
| £ | |
| Totals £ | 40,000 |
| Statement of financial position | Net Assets |
|---|---|
| £ | |
| Totals £ | 290,000 |
| Statement of financial position | Financed by |
|---|---|
| £ | |
| Totals £ |
| Statement of financial position | Equity and reserves |
|---|---|
| £ | |
| Totals £ |
| Statement of financial position | Share Capital |
|---|---|
| £ | 20,000 |
| Totals £ |
| Statement of financial position | Retained Profit |
|---|---|
| £ | 10,000 |
| Totals £ |
| Statement of financial position | |
|---|---|
| £ | |
| Totals £ |
| Statement of financial position | Long Term Liabilities |
|---|---|
| £ | |
| Totals £ |
| Statement of financial position | Bank Loan |
|---|---|
| £ | 190,000 |
| Totals £ |
| Statement of financial position | Mortgage |
|---|---|
| £ | 70,000 |
| Totals £ |
| Statement of financial position | Capital Employed |
|---|---|
| £ | |
| Totals £ | 290,000 |
There are several key elements on a statement of financial position. These include assets, liabilities, working capital (net current assets), and capital employed.
In broad terms, assets are things that a business owns, whilst liabilities are things or money that a business owes.
- Assets are split into two different categories, current and fixed (or non-current):
- Current assets are short term, they will be owned for, or last for, less than a year. This may include things such as stock, raw materials, and cash.
- Fixed (non-current) assets are long term, they will be owned, or last for, more than a year. These may include things such as vehicles, equipment and buildings.
- Liabilities are also split into two different categories, current and long-term (or non-current):
- Current liabilities, or short-term debts, are any debts a business owes that will need to be paid back within a year, for example an overdraft, trade credit or a short-term business loan.
- Long-term (non-current) liabilities is money borrowed that is paid back in more than a year, for example mortgages or a long-term bank loan.
- Net current assets and working capital are the same. This is calculated by subtracting current liabilities from current assets. Net current assets is the money available for the day-to-day running and operation of a business, such as paying wages and purchasing stock.
- Net assets is essentially what a business is worth. This is calculated by adding fixed assets and net current assets (working capital) together. It can also be calculated as the difference between total assets and total liabilities.
- Capital employed is achieved by adding any equity and reserves, such as shareholder funds, to the long-term liabilities. This figure should always match the net assets figure, to make the sheet balance.
