The Statement of Financial Position (AQA GCSE Business)

Revision Note

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Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

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 Tips and Tricks

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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Lisa Eades

Author: Lisa Eades

Expertise: Business Content Creator

Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.