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A LevelBusinessCambridge (CIE)Revision Notes5. Finance & AccountingFinancial Statements (A Level)Statement of Financial Position

Statement of Financial Position (Cambridge (CIE) A Level Business): Revision Note

Exam code: 9609

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

Updated on

The purpose of the statement of financial position

  • The statement of financial position provides a snapshot of a business’s financial position at a given point in time

    • It is often called the balance sheet

  • It shows what the business owns (assets), what it owes (liabilities), and how it is funded (capital and reserves)

  • It contains the financial information required to draw conclusions about the liquidity of the business

The structure of the statement of financial position

  • The statement of financial position details the following elements at a specific point in time

Assets

  • Non-current assets are items owned by a business for the long-term, such as machinery and buildings

  • Current assets are items that a business owns that can be converted to cash quickly , usually within 12 months, comprised of inventory, trade receivables and cash

  • Total assets = Non-current assets + Current assets

Liabilities

  • Current liabilities is money a business owes that is due to be settled within 12 months, including trade payables and short-term borrowing, such as overdrafts

  • Non-current liabilities is money a business owes, such as a loan or mortgage, that does not need to be paid back for at least 12 months

  • Net current assets = Current assets - Current liabilities

  • Net assets is a calculation of the value of a business, calculated using the formula

left parenthesis Non minus current space assets space plus space Current space assets right parenthesis space minus space left parenthesis Current space liabilities space plus space Non minus current space liabilities right parenthesis

Capital structure

  • Equity (or owners' capital) is money invested in the business by its owner(s)

  • Profit for the year is the profit after tax generated in the last financial year

  • Capital employed is the total finance invested in the operations of a business

A statement of financial position showing key elements

Balance sheet for PriceWise Sports Ltd as of 31 December 2024, showing non-current assets, current assets, liabilities, and capital employed.
The statement of financial position (balance sheet) shows a business's assets, liabilities and capital structure at a point in time

  • In this example, drawings refers to the money (capital) removed from the business by its owner(s)

Amending the statement of financial position

  • A change to one section of the statement of financial position has an impact on other sections

Worked Example

Pershore Plumbers Ltd's accountant has sent the interim statement of financial position to Helen, the business owner. She has been asked to check the statement before it is sent to Companies House

Pershore Plumbers Ltd - Statement of financial position at 31st March 2025

Financial statement showing assets, liabilities, and equity. Non-current assets: £21,400; Current assets: £85,140; Equity: £166,290; Total liabilities: £40,150.

Helen identifies three errors

  • Depreciation was £24,100

  • An inventory check on 31st March 2025 valued stock at £26,400

  • Long-term borrowing increased to £25,000 as the business took out a further small loan

Recalculate the statement of financial position to reflect these changes.

(6)

Step 1: Update non-current liabilities given the change to depreciation

Non minus current space assets space equals space Asset space value space minus space Depreciation equals space £ 142 comma 700 space minus space £ 24 comma 100 equals space £ 118 comma 600 (1)

Step 2: Update current assets given the change in stock valuation

Current space assets space equals space Cash space plus space Debtors plus space Stock equals space £ 30 comma 260 space plus space £ 26 comma 630 space plus space £ 26 comma 400 equals space £ 83 comma 290 (1)

Step 3: Update total assets given these changes

Total space assets space equals space Non minus current space assets space plus space Current space assets equals space £ 118 comma 600 space plus space £ 83 comma 290 equals space £ 201 comma 890 (1)

Step 4: Update non-current liabilities given the increase in long-term borrowing

equals space £ 20 comma 000 space plus space £ 5 comma 000 equals space £ 25 comma 000

Step 5: Update total liabilities

Total space liabilities space equals space Current space liabilities space plus space Non space current space liabilities equals space £ 20 comma 150 plus space £ 25 comma 000 equals space £ 45 comma 150 (1)

Step 6: Update net assets given these changes

Net space assets space equals space Total space assets space minus space Total space liabilities equals space £ 201 comma 890 space minus space £ 45 comma 150 equals space £ 156 comma 740 (1)

Step 7: Update share capital to balance equity with net assets

equals space £ 156 comma 740 space minus space £ 101 comma 290 equals space £ 55 comma 450 (1)

Pershore Plumbers Ltd - Updated statement of financial position at 31st March 2025

Balance sheet showing non-current assets, current assets, current liabilities, non-current liabilities, net assets, and equity with respective values.

The relationship between the statement of profit and loss and the statement of financial position

  • The statement of profit and loss and the statement of financial position are closely linked, and several items appear in both or affect each other

    • E.g. Profit identified in the statement of profit and loss is transferred to the equity section of the statement of financial position under retained earnings (profit)

  • Profit or loss made in one period directly affects equity in the statement of financial position.

    • Items like depreciation, taxation and sales don’t just affect profit, they also change the values of assets and liabilities

Relationships between items

Item

Where it appears

Relationship

Profit for the year

  • Bottom of the statement of profit and loss

  • Added to retained earnings in the equity section of the statement of financial position

Dividends

  • Often shown after profit in the profit and loss statement

  • Subtracted from profit and also reduces retained earnings in the statement of financial position

Retained earnings

  • Not shown in the profit and loss, but affected by it

  • Built up from past profits (after tax and dividends) and shown in the equity section of the statement of financial position

Expenses (e.g. depreciation)

  • Statement of profit and loss

  • May reduce the value of assets (e.g. machinery) in the statement of financial position

Taxation

  • Deducted in the profit and loss statement

  • If unpaid, it appears as a current liability in the statement of financial position

Sales revenue

  • Top of the profit and loss statement

  • Can increase cash or receivables in the statement of financial position

Purchases / cost of sales

  • Profit and loss statement

  • May reduce inventory or increase payables in the statement of financial position

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    Author
    Reviewer
    Lisa Eades

    Author: Lisa Eades

    Expertise: Business Content Creator

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

    Steve Vorster

    Reviewer: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.