The Statement of Financial Position (AQA GCSE Business)

Revision Note

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Assets & Liabilities

Assets

  • Assets are items that are owned by a business

  • Two types of assets appear in the statement of financial position 

    • Non-Current Assets are items owned by the business in the long-term

      • Examples include tangible assets such as buildings, land, machinery and vehicles

      • Non-current assets may be intangible such as patents, goodwill or  brand value

    • Current Assets include cash and items that can be turned into cash relatively quickly, usually within 12 months

      • The four types of current assets are cash in hand, cash in bank, trade receivables and inventory

Liabilities

  • Liabilities are items that are owed by a business

  • Two types of liabilities appear in the statement of financial position  

    • Current Liabilities are short-term financial obligations that a business must usually pay within one year, or as demanded by its creditors

      • E.g. Trade payables and bank overdrafts

    • Non-current Liabilities are moneys owed by a business that are due to be repaid over a period longer than twelve months

      • E.g. Long term loans and mortgages

Structure of the Statement of Financial Position

  • The Statement of Financial Position shows the financial structure of a business at a specific point in time

    • It is included as a key financial statement in the annual report

  • It identifies a businesses assets and liabilities and specifies the capital (equity) used to fund the business operations

  • The Statement of Financial Position is sometimes known as the Balance Sheet

    • It is called the balance sheet as the net assets are equal to the total equity

  • The statement of financial position generally follows the structure shown below

Diagram: Statement of Financial Position

The statement of financial position details assets, liabilities and capital of a business at a specific point in time

The statement of financial position details assets, liabilities and capital of a business at a specific point in time

Interpreting the statement of financial position

  • Several deductions can be made from the statement about how a business finances its activities,

Financing its activities

  • Packer Sports Limited is funded through share capital of $1,500 and retained earnings of $13,235

    • The business has long-term liabilities in the form of a loan for $20,000

      • This is significantly greater than share capital so its gearing is high

      • Future applications for loans may be declined as the business is likely to be seen as a lending risk

What the business owns

  • On the stated date, Packer Sports Ltd owned assets worth $39,795 in total

    • Non-current assets of $24,250 consisting of property, machinery (plant) and other equipment

    • Current assets worth $15,545, comprised of inventory, trade receivables and cash

      • Inventory will be sold and converted to cash or trade receivables

    • When trade payables pay their invoices they will become cash

What the business owes

  • On the stated date, the business had total liabilities of $25,060

    • Its current liabilities were $5,060, comprised of a bank overdraft, trade payables and other short-term loans

    • Its long-term liabilities were valued at $20,000

Examiner Tip

You are not required to construct a statement of financial position in the exam, but you may be asked to define assets and liabilities or identify the statement's uses and key components.

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