Statement of financial position
A statement of financial position shows the value of a business on a particular date.
A balance sheet shows:
- assetSomething a business owns that has monetary value such as a delivery van or money in the bank. - what the business owns
- liabilitiesA business' debts or obligations. - what the business owes
| Statement of financial position for Business Ltd as at 31 March 2019 | |||
| £000 | £000 | £000 | |
| Non-current assets | |||
| Premises | £500,000 | ||
| Vehicles | £100,000 | ||
| £600,000 | |||
| Current assets | |||
| Inventory | £100,000 | ||
| Cash at bank | £50,000 | £150,000 | |
| Current liabilities | |||
| Trade payables | £30,000 | ||
| Wages payable | £20,000 | £50,000 | |
| Net current assets | £100,000 | ||
| Total assets less current liabilities | £700,000 | ||
| Non-current liabilities | |||
| Bank loan | £100,000 | £100,000 | |
| Net assets | £600,000 | ||
| Equity and reserves | |||
| Shares | £250,000 | ||
| Retained profits | £100,000 | ||
| Net worth | £950,000 |
| Statement of financial position for Business Ltd as at 31 March 2019 |
| £000 |
| £000 |
| £000 |
| Non-current assets |
| Premises |
| £500,000 |
| Vehicles |
| £100,000 |
| £600,000 |
| Current assets |
| Inventory |
| £100,000 |
| Cash at bank |
| £50,000 |
| £150,000 |
| Current liabilities |
| Trade payables |
| £30,000 |
| Wages payable |
| £20,000 |
| £50,000 |
| Net current assets |
| £100,000 |
| Total assets less current liabilities |
| £700,000 |
| Non-current liabilities |
| Bank loan |
| £100,000 |
| £100,000 |
| Net assets |
| £600,000 |
| Equity and reserves |
| Shares |
| £250,000 |
| Retained profits |
| £100,000 |
| Net worth |
| £950,000 |
Non-current assets
Non-current assets show the current value of major purchases that help in the running of the business, like delivery vans, premises or PCs.
In this case £600,000 of non-current assets are owned. Non-current assets are usually owned for longer than a year.
Current assets
Current assets show the cash or near-cash available to the firm. This includes inventory (stock) ready to sell, money owed to them by debtors and cash in the bank.
There is £150,000 worth of current assets. The value of current assets is likely to change in the short term.
Current liabilities
Current liabilities are any debts a business owes that will need to be paid back within a year (short-term debts).
Net current assets
Net current assets show the value of the company once all current liabilitiesA business' debts or obligations. have been taken from the assetSomething a business owns that has monetary value such as a delivery van or money in the bank..
Non-current liabilities
Non-current liabilities usually include long-term loans such as a long-term bank loan or debentureA medium- to long-term loan used by large companies to borrow money, at a fixed rate of interest. that do not need paid back within a year.
In this case the businses has non-current liabilities worth £100,000
Equity and reserves
Equity and reserves show the money that has been invested by the owners and any profit that has been kept by the business retained profitsProfit held back in the business for reinvestment rather than being distributed as dividends..
Net worth
Net worth adds together the businesses equity and reserves, and its net assets. This shows the overall worth of the business on the day the statement of financial position was drawn up.
In this case, the business has a net worth of £950,000.
Purpose of a statement of financial position
- A statement of financial position shows the overall value of the business. It is a legal requirement for all limited companies to prepare a statement of financial position
- Investors and potential investors can use a statement of financial position to determine whether they will get a good return on their investment.
- supplierA business which provides other organisations with raw materials or goods. and creditorsPeople you owe money to. can use it to determine the level of risk involved in lending or supplying to the business
- A statement of financial position can be used to ratio analysisa form of analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. which can be compared with previous years or those of competitors. This will better aid future decision-making
- A statement of financial position can be used to show the value of all current assetsSomething of value the business owns, which can easily be turned into cash and is held for less than a year., non-current assetsThe current value of major purchases that help in the running of the business., liabilitiesA business' debts or obligations. and non-current liabilitiesLong-term loans.