F5 Creation of Statements of Financial Position
A statement of financial position otherwise known as a balance sheet is a document that reports a snapshot of a firms financial position on a specific day. The document reports the assets, liabilities and capital employed of a business.
The statement can be used to analyse the performance of the business for different purposes by different stakeholders.
Managers may use it to check progress against targets.
Investors may compare statements to ones prepared on previous dates to see if the firm is increasing in value.
Creditors may use the statements to check the liquidity of the firm before giving credit.
Non-current assets are items owned by the business that are not easily turned into cash and therefore will not be converted into cash within an accounting year. They are used for longer-term investment into growth. Examples include property, machinery and vehicles.
Current assets are items that can or will be converted into cash within one year.
Current liabilities are debts of the business that must be paid within 12 months.
Net current assets = current assets - current liabilities (when current assets exceed current liabilities)
| Statement of Financial Position for The Coffee Hub at December 2023 | ||
|---|---|---|
| £ | £ | |
| Non-current assets (Fixed assets) | ||
| Property | 560,500 | |
| Equipment | 207,000 | |
| 767,500 | ||
| Current assets | ||
| Receivables (debtors) | 7,000 | |
| Stock (inventory) | 30,000 | |
| Cash at bank | 83,000 | |
| 120,000 | ||
| Current liabilities | ||
| trade payables | 34,000 | |
| Short-term loans | 66,000 | |
| 100,000 | ||
| Net current assets | 20,000 | |
| Total assets less current liabilities | ||
| Long-term liabilities | 350,000 | |
| Net assets | 437,500 | |
| Equity | ||
| Owner's capital | 150,000 | |
| Retained profits | 287,500 | |
| Total equity | 437,500 | |
Non-current liabilities is the value of debts of the business that will be payable after more than one year.
Net assets are the sum of everything the business owns minus everything it owes. It is calculated by the formula;
Net assets = non-current assets + current assets - current liabilities - non-current liabilities.
Total equity is the total value of all long-term finance invested in the business
