Statement Of Financial Position
This lesson introduces the Statement of Financial Position of a sole proprietor. Students will learn its purpose and format, how assets, liabilities, and capital are classified, and how the statement shows the financial position of the business at a specific date.
Related Lessons:
Total Asset, Liability and Equity
The Statement of Financial Position is made up of five sections: non-current assets, current assets, non-current liabilities, current liabilities, and owner’s equity.
Non-current asset
Are assets that benefit the business for more than one accounting period.
Examples: fixtures & fittings, motor vehicles, office equipment, premises, machinery
Current asset
Are assets that benefit the business for one or less than one accounting period.
Examples: trade receivables, inventory, cash in hand, cash at bank
Non-current liability
Are amounts owed by the business that are repayable over more than one accounting period.
Examples: Loans
Current liability
Are amounts owed by the business that are repayable within the accounting period.
Examples: trade payables, bank overdraft
Owner’s equity
Are amount invested by the owner plus profits earned, less any drawings taken out of the business.
Format of the Statement of Financial Position
The Statement of Financial Position comprises of two distinct parts, namely Total Assets and Total Equity and Liabilities.
Total assets are calculated by adding total non-current asset to total current assets.
Total asset = non-current asset + current asset
Total equity and liabilities are calculated by adding owner’s equity to total non-current liability and total current liability.
Owner’s equity = capital + profit (- loss) – drawings
Total liability = non-current liability + current liability
Total equity and liability = owner’s equity + total liability
Preparing A Statement of Financial Position
Steps to preparing a trading business statement of financial position of a sole proprietor:
We start by stating the business name and the date that this statement represents in the header. The date will include the day, month and year.
1st section – non-current asset:
We list all the non-current assets owned by the business and record them at their cost.
2nd section – current asset:
We list all the current assets owned by the business and record their values as at the date of the statement.
We complete the first part of the Statement of financial position by adding the total non-current assets and total current assets to determine total assets.
3rd section – owner’s equity
We calculate the final equity amount using the formula: capital + profit (-loss) – drawings
4th section – non-current liability:
We list all the non-current liabilities owed by the business and record their values as at the date of the statement.
5th section – current liability:
We list all the current liabilities owed by the business and record their values as at the date of the statement.
The second part of the Statement of financial position is to add owner’s equity, total non-current liability and total current liability to determine total equity and liability.
This completes the preparation of the statement. Total assets should equal total equity and liability. If it doesn’t, it means there are errors in the statement of financial performance or statement of financial position.