Chapter 22- Statement of Financial Position

 Statement of Financial Position – a document that shows the value

of the business’ assets and liabilities in a point in time
 Assets – Items of value owned by a business
There are 2 types of assets:
o Current Assets – (Short-term Assets) Items owned by business
for less than 1 year i.e. Inventory, Debtors (money to be
collected from customers), Bank and Cash
o Non-Current Assets – (Long-term Assets) Items owned by
business for more than 1 year i.e. Buildings, land, Motor
Vehicles, Machine, Equipment

 Liabilities – Debts owed by business

There are also 2 types of liabilities:
o Current Liabilities – (Short Term Liabilities) Debts owed by
business for less than 1 year i.e. Bank overdrafts, Creditors
(money that business owes to suppliers)
o
o Non-Current Liabilities – (Long Term Liabilities) Debts owed by
business for more than 1 year i.e. Long-term bank loans,

 The Total Equity (AKA Shareholders’ funds) is how much a business is

worth. (only for Limited companies)

Shareholders’ Funds = Total Assets – Total Liabilities

 The shareholders’ funds is the total amount of money invested in a
business by the shareholders/owners

 If the total equity of a business has increased/fallen, the shareholder’s

stake of the company will be worth more/less, respectively
Format of SOFP

Fixed assets xxx

Current assets xxx

Total assets xxx

Non current liabilities xxx

Current liabilities xxx

Equity:

Share capital xxx

Profit/loss xxx

Total liabilities + equity xxx

 From the statement of financial position, you can calculate the
Working Capital.
Working Capital = Current Assets - Current Liabilities
 You can also calculate the Capital Employed – the long-term capital
invested in a business
Capital Employed = Non-Current Liabilities + Total Equity
 Total Equity = Shareholders’ funds
Interpreting balance sheets
 Shareholders can see the value of their stake
 They can analyze how expansion is paid for
 Working capital can be calculated
 Working capital = current assets – current liabilities
 Capital employed can be calculated
 Capital employed = shareholders’ funds + noncurrent liabilities
 Calculate ratios