Statement of Financial Position (Cambridge (CIE) O Level Accounting)

Statement of Financial Position for Sole Traders

What is the statement of financial position?

• The statement of financial position is one of the financial statements of a sole trader business

• It shows the position of the business in terms of its assets, liabilities and capital at a particular date  

  • It provides a snapshot of the business on a particular date

• The statement of financial position is split into two halves

  • The assets are listed in the first half

  • The capital and liabilities are listed in the second half

  • The totals for each half will be equal

• The statement of financial position is prepared in exactly the same way for a trading and a service business

• The figures used to prepare the statement of financial position will be taken from the trial balance or list of balances

  • Additional information will be given after the trial balance

  • This is where the valuation of the closing inventory is given

• The statement of the financial position is prepared after the income statement

  • The profit or loss for the year will increase or decrease the capital

• The statement of financial position is not part of the double entry system

  • The balances of the accounts are stated on the statement

  • They are not transferred to the statement 

What is the layout for the assets section?

• The non-current assets are listed first

  • Any intangible non-current assets are listed first

    • These are the non-current assets that do not have a physical form but still add value to the business

    • Such as intellectual property, goodwill and brand names

  • Followed by tangible non-current assets

    • These are the non-current assets that have a physical form and are obtained to help the business generate profit rather than for resale

    • Such as equipment, machinery, motor vehicles, land and buildings etc

• Three values are stated for each non-current asset in separate columns in the following order:

  • Cost

  • Provision for depreciation

  • Net book value

• The total for each column is calculated

  • The total for the net book value column is the total value for the non-current assets

• The current assets are listed after the non-current assets

• The values for the current assets are listed in the middle column

  • If there is a provision for doubtful debt then the far left column is used to subtract its balance from the trade receivables

  • The total is put in the far right column

• The total assets value is found by adding the total non-current assets and the total current assets

• It is conventional to list the assets within each section in order of their liquidity

  • Starting with the least liquid assets

How do I complete the capital and liabilities section?

• Firstly, calculate the capital in the far right column

  • Start with the opening capital from the beginning of the financial year

  • Add (or subtract) the profit (or loss) for the year

  • Subtract any drawings

  • This gives the capital at that date

• Secondly, list the non-current liabilities

  • If there is just one item then put it in the far right column

  • Otherwise, list them in the middle column and put the total in the far right column

• Thirdly, list the current liabilities

  • List them in the middle column and put the total in the far right column

• Finally, calculate the total capital and liabilities by adding together:

  • The capital

  • The total non-current liabilities

  • The total current liabilities