Statement of financial position
Introduced| English | Meaning |
|---|---|
| assets/ˈæsets/ | Resources owned or controlled by a person or organisation that are expected to provide value or future benefits. |
| statement of financial position/ˈsteɪtmənt ɒv faɪˈnænʃl pəˈzɪʃn/ | A financial statement showing an organisation's assets, liabilities and equity at a particular date. |
| balance sheet/ˈbæləns ʃiːt/ | A statement of an organisation's assets, liabilities and equity at a particular date. |
| liabilities/ˌlaɪəˈbɪlɪtiz/ | Present obligations of a person or organisation that require future transfers of resources to settle. |
| equity/ˈekwɪti/ | The owners' residual interest in a business's assets after liabilities are deducted. |
| non-current assets/nɒn ˈkʌrənt ˈæsets/ | non-current assets |
| current assets/ˈkʌrənt ˈæsets/ | Assets expected to be used, sold or converted into cash within the normal operating cycle or a year. |
| debtors/ˈdetəz/ | debtors |
| current liabilities/ˈkʌrənt ˌlaɪəˈbɪlɪtiz/ | Obligations expected to be settled within the normal operating cycle or a year, as defined in the accounting framework used. |
| non-current liabilities/nɒn ˈkʌrənt ˌlaɪəˈbɪlɪtiz/ | non-current liabilities |
Do £120,000 of assets all belong to the owner?
- A repair shop lists £120,000 of assets, but it also owes suppliers and a bank. The asset total alone cannot tell us the owners' stake or how much cash can be spent today.
- A statement of financial position 财务状况表, also called a balance sheet 资产负债表, shows assets, liabilities and equity at a named date. The income statement measures profit over a period; this statement is a snapshot on one day.
Identify current and non-current assets
- Assets 资产 are resources the business owns or controls. Non-current assets 非流动资产 are kept for continuing use, such as workshop machinery and buildings. They are not bought to sell in normal trading.
- Current assets 流动资产 include cash, stock held for sale and debtors 应收账款: customers who owe the business money. A bicycle held for sale is stock; a bicycle kept for making deliveries is a non-current asset. The business's use of an item matters.
Which is an asset?
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Assets are what the business owns; the others are liabilities.
Which is a current asset?
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Cash is a current asset; buildings and machinery are non-current.
A bicycle retailer keeps one bicycle for local deliveries. Which classification fits this bicycle?
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Classification depends on use. The delivery bicycle is a non-current asset; bicycles held for normal sale are stock, a current asset.
Classify what is owed
- Liabilities 负债 are amounts the business owes. Current liabilities 流动负债 are due within a year, such as amounts owed to suppliers or an overdraft. Non-current liabilities 非流动负债 are due after more than a year.
- Read the repayment dates. A loan can have £4,000 due within the next year and £16,000 due later: the first part is current and the rest is non-current. Money owed by customers is an asset; money owed to suppliers is a liability.
A bank loan that the business must repay is an example of a ______.
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Liabilities are what the business owes.
A £24000 loan has £6000 repayable within the next year and the rest due after that. How much is a non-current liability (£)?
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£24000 − £6000 = £18000 is due after more than a year. The £6000 due within a year is current.
A shop is owed £7000 by customers and owes £4000 to suppliers. Which classification is correct?
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Customers owe the shop: receivables/debtors are current assets. The shop owes suppliers: those debts are current liabilities.
Read how the assets are financed
- Equity 所有者权益 is the owners' stake: assets − liabilities. It includes owners' investment and profits kept in the business. The equation is assets = liabilities + equity; both sides describe the same resources and their financing.
- For the repair shop, assets £120,000 − liabilities £70,000 = equity £50,000. Liabilities £70,000 plus equity £50,000 return to assets £120,000. Equity is not an extra asset or an amount of cash in a separate box.
Equal totals do not mean every asset can be turned into cash immediately.
A business owns assets of 90 and owes liabilities of 55. What is the equity?
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Equity = assets − liabilities = 90 − 55 = 35.
On the statement of financial position, assets are always larger than liabilities plus equity.
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False. Assets always equal liabilities plus equity; that is why it is called a balance sheet.
A business has machinery £65000, stock £14000, customer debts £9000 and cash £2000. What are its total assets (£)?
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Total assets = £65000 + £14000 + £9000 + £2000 = £90000. Do not add equity to these resources.
Look inside the totals
- The repair shop has £84,000 of non-current assets, £18,000 stock, £12,000 owed by customers and £6,000 cash. These total £120,000. Supplier debts of £24,000 plus a long-term loan of £46,000 make liabilities £70,000.
- It uses both borrowing/supplier credit and owners' funds. Cash £6,000 is below supplier debts £24,000. Stock sales and customer payments may help, but their timing matters; total assets of £120,000 do not prove it can pay £24,000 today.
A business has total assets £168000, current liabilities £31000 and non-current liabilities £72000. What is owners’ equity (£)?
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Total liabilities = £31000 + £72000 = £103000. Equity = £168000 − £103000 = £65000.
Explain why the snapshot changes
- If the shop receives a new £10,000 long-term loan, cash and total assets rise by £10,000, and liabilities rise by £10,000. Assets become £130,000 and liabilities £80,000; equity stays £50,000. Borrowing does not create profit.
- If stock recorded at £18,000 is sold for exactly £18,000 cash, stock becomes zero and cash becomes £24,000. Total assets do not change in this simplified transaction. It converts stock into cash, but no profit is made at that selling price.
A shop has assets £95000 and liabilities £40000. It receives a new £15000 long-term loan in cash, with no other changes. What is equity immediately afterwards (£)?
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Assets become £110000 and liabilities £55000. Equity remains £110000 − £55000 = £55000; borrowing does not add to owners’ stake.
A shop has £4000 cash and stock recorded at £9000. It sells all that stock for exactly £9000 cash, with no other changes. State the new cash and stock balances, and explain the effects on total assets and profit.
Use the stated figures and link each conclusion to this business. Check the model after writing your own response.
Use the statement carefully
- Lenders examine existing debts and assets before deciding on another loan. Suppliers may use current assets and payment history before offering credit. Owners look at their stake and the mix of finance, alongside profit and future plans.
- Equity is a recorded stake, not a guaranteed selling price for the business. Stock may not sell at its recorded value and customers may pay late. One dated statement cannot by itself prove future payment ability or show the year's profit.
A statement shows equity of £80000. An owner says this guarantees selling the business tomorrow for £80000. Assess this claim, using one asset example and one further source of evidence.
Use the stated figures and link each conclusion to this business. Check the model after writing your own response.
Make deductions from a new statement
- Identify the date, units, asset uses and debt due dates. Add each category once, calculate equity and check that assets equal liabilities plus equity. You need to interpret a simple statement, rather than memorise how to construct one.
- Support a finance decision with both the amounts and their timing. Selling surplus stock may raise cash, but losing needed stock could interrupt trading; selling essential machinery could reduce future output.
A business owns assets of 120 and owes liabilities of 45. What is the equity, and why might the same statement be out of date the next day?
Equity is assets minus liabilities. The accounting equation keeps assets equal to liabilities plus equity.
Review the same example: assets 120 and liabilities 45. What is the equity?
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120 minus 45 is 75. Liabilities of 45 plus equity of 75 return to the assets. Other options — 35 (the lesson equity from assets of 90 and liabilities of 55); 120 (the assets).
A shop asks a supplier for another £10000 of credit. Its statement (£000) lists machinery150, stock32, customer debts20, cash8, current liabilities60 and long-term loans90. Calculate total assets and equity. Explain why “assets exceed debts” is not enough to approve the credit, and recommend what to check.
Use the stated figures and link each conclusion to this business. Check the model after writing your own response.