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IGCSEBusinessCambridge (CIE)Revision Notes5. Financial Information & Decisions5.4 Statement of Financial PositionUnderstanding the Statement of Financial Position

Syllabus Edition

First teaching 2025

First exams 2027

Understanding the Statement of Financial Position (Cambridge (CIE) IGCSE Business): Revision Note

Exam code: 0450, 0986 & 0264, 0774

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

Updated on

What is the statement of financial position?

  • The statement of financial position shows the financial structure of a business at a specific point in time

    • It identifies a business's assets and liabilities and specifies the capital (equity) used to fund the business operations

  • The statement of financial position is also known as the balance sheet

    • It is called the balance sheet, as net assets are equal to the total equity – the net assets and equity balance

A statement of financial position

Financial statement showing assets, liabilities, and capital employed. Total assets: $554,000; liabilities: $168,700; net assets and capital employed: $408,000.
The statement of financial position shows assets and liabilities of a business and how the business is funded

Assets

  • Assets are items owned by a business

    • There two type, namely, non-current assets and current assets

Non-current assets

  • Non-current assets are owned by a business in the long-term, usually a period more than 12 months

    • Examples include tangible assets such as buildings, land, machinery and vehicles

    • Non-current assets may be intangible, such as patents, goodwill or  brand value 

Current assets

  • Current assets include cash and items that can be turned into cash relatively quickly, usually within 12 months

    • The three main types of current assets are cash, trade receivables and inventory

Diagram showing liquidity order: inventory (least liquid) as boxes, trade receivables as documents, and cash (most liquid) as banknotes and coins.
Cash is the most liquid current asset, while inventory is the least liquid

  • Cash is the most liquid form of current asset, as it can be used immediately as a method of payment

  • Inventory is the least liquid form of current asset, as, before it can be used for payment, it must be sold

Liabilities

  • Liabilities are amounts of money owed by a business (debts) 

    • Non-current liabilities are amounts owed that do not need to be paid back for at least 12 months

      • For example, long-term loans such as mortgages

    • Current liabilities are amounts owed that must be repaid within 12 months

      • For example, creditors (trade payables) and bank overdrafts

Capital employed

  • Capital employed is the total amount of money that a business uses to operate and grow

  • It usually includes:

    • Equity

      • Money invested by the owners or shareholders.

    • Non-current liabilities

      • Long-term loans or borrowings

  • In the statement of financial position, capital employed is equal to net assets

Diagram showing Net Assets as Assets minus Liabilities, equating to Capital Employed as Equity plus Non-current Liabilities.
Capital employed is equal to net assets

Calculations based on the statement of financial position

Statement of financial position

Chagny Rentals Ltd at 31st December 2024

Financial statement showing assets, liabilities, and capital employed. Total assets: $554,000; net assets: $408,000; capital employed: $408,000.
Chagny Rentals Ltd's statement of financial position at 31st December 2024

1. Calculating total assets

  • Total assets are the sum of non-current assets and current assets

  • This figure represents everything a business owns at a specific point in time

Worked Example

In this case, Chagny Rentals Ltd has total assets of

equals space $ 490 comma 000 space plus space $ 64 comma 000 equals space $ 554 comma 000

2. Calculating total liabilities

  • Total liabilities are the sum of current liabilities and non-current liabilities

  • This figure represents everything a business owes at a specific point in time

Worked Example

In this case, Chagny Rentals Ltd has total liabilities of

equals space $ 22 comma 700 plus space $ 146 comma 000 equals space $ 168 comma 700

3. Calculating working capital

  • Working capital is the money a business has available for day-to-day activities, such as paying bills, buying stock and covering wages

  • It is calculated using the formula

Working space capital space minus space Current space assets space minus space Current space liabilities

Worked Example

In this case, Chagny Rentals Ltd has working capital of

equals space $ 64 comma 000 space minus space $ 22 comma 700 equals space $ 41 comma 300

It is likely to be able to meet its financial obligations because it has more current assets than current liabilities

Decisions based on the statement of financial position

  • The statement of financial position can be used to answer important questions that may support business decisions

Question

Based on

Explanation

Can the business pay short-term debts?

  • Working capital

  • If working capital is too low, the business may struggle with day-to-day payments

Should the business invest in new equipment?

  • Non-current assets and capital employed

  • Helps assess if the business has enough long-term funds for investment

Is the business taking on too much debt?

  • Total liabilities

  • High debt can increase risk and interest costs

Is the business growing?

  • Compare with previous statements

  • Increases in assets and capital may show growth

Examiner Tips and Tricks

Remember, a statement of financial position is a snapshot of assets and liabilities at one point in time, unlike a profit and loss statement which shows performance over a period of time, usually a year

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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.