Statement of Financial Position (Cambridge International IGCSE Accounting)

Statements of financial position for sole traders

Statement of financial position for sole traders

What is the statement of financial position?

• The statement of financial position is one of the financial statements of a sole trader business

• It shows the position of the business in terms of its assets, liabilities and capital *at a particular date

  • It provides a snapshot of the business on a particular date

• The statement of financial position is split into two halves

  • The assets are listed in the first half
  • The capital and liabilities are listed in the second half
  • The totals for each half will be equal

• The statement of financial position is prepared in exactly the same way for a trading and a service business

• The figures used to prepare the statement of financial position will be taken from the trial balance or list of balances

  • Additional information will be given after the trial balance
  • This is where the valuation of the closing inventory is given

• The statement of the financial position is prepared after the income statement

  • The profit or loss for the year will increase or decrease the capital

• The statement of financial position is not part of the double entry system

  • The balances of the accounts are stated on the statement
  • They are not transferred to the statement

Layout of a statement of financial position

Exam Hint On a trial balance, both bank and bank overdraft will be listed as "bank". If it is a debit balance, then there is money in the bank, and it is an asset. If it is a credit balance, then money is owed to the bank (it is a bank overdraft), and it is a liability.

What is the layout for the assets section?

• The non-current assets are listed first

  • Any intangible non-current assets are listed first

    • These are the non-current assets that do not have a physical form but still add value to the business
    • Such as intellectual property, goodwill and brand names

  • Followed by tangible non-current assets

    • These are the non-current assets that have a physical form and are obtained to help the business generate profit rather than for resale
    • Such as equipment, machinery, motor vehicles, land and buildings etc

• Three values are stated for each non-current asset in separate columns in the following order:

  • Cost
  • Provision for depreciation
  • Net book value

• The total for each column is calculated

  • The total for the net book value column is the total value for the non-current assets

• The current assets are listed after the non-current assets

• The values for the current assets are listed in the middle column

  • If there is a provision for doubtful debt then the far left column is used to subtract its balance from the trade receivables
  • The total is put in the far right column

• The total assets value is found by adding the total non-current assets and the total current assets

• It is conventional to list the assets within each section in order of their liquidity

  • Starting with the least liquid assets

Layout of the assets section of the statement of financial position

Exam Hint For the inventory value, make sure you use the value of the closing inventory. A service business might not have inventory. For example, a taxi driver will not have any inventory.

How do I complete the capital and liabilities section?

• Firstly, calculate the capital in the far right column

  • Start with the opening capital from the beginning of the financial year
  • Add (or subtract) the profit (or loss) for the year
  • Subtract any drawings
  • This gives the capital at that date

• Secondly, list the non-current liabilities

  • If there is just one item then put it in the far right column
  • Otherwise, list them in the middle column and put the total in the far right column

• Thirdly, list the current liabilities

  • List them in the middle column and put the total in the far right column

• Finally, calculate the total capital and liabilities by adding together:

  • The capital
  • The total non-current liabilities
  • The total current liabilities

Layout of the capital and liabilities section of the statement of financial position

Exam Hint If you are given the information in a trial balance, identify the items that would appear on the statement of financial position. You might find it helpful to annotate with SoFP to differentiate from those which would appear on the income statement.

Worked Example The following trial balance has been extracted by the book-keeper of Bilal Aba at 31 December 2023.

	Debit $**	Credit $
Trade receivables	73 217
Trade payables		19 745
Capital at 1 January 2023		58 466
Bank		550
Cash	400
Bank loan		10 000
Loan interest	500
Rent and rates	4 862
Salaries	33 872
Machinery	8 000
Drawings	12 715
Purchases	141 195
Revenue (Sales)		205 471
Inventory at 1 January 2023	19 471
	294 232	294 232

Additional information:

• Inventory at 31 December 2023 is valued at $4 060
• The machinery was purchased during the year and the depreciation charge is $600
• The profit for the year, after including depreciation, is $9 031

Prepare a statement of financial position for Bilal Aba at 31 December 2023.

Answer:

• Identify which items appear on the statement of financial position by labelling them as SoFP

• Add extra rows for

  • the closing inventory
  • provision for depreciation
  • and profit for the year

	Debit $	Credit $	Statement of financial position?
Trade receivables	73 217		SoFP
Trade payables		19 745	SoFP
Capital at 1 January 2023		58 466	SoFP
Bank		550	SoFP
Cash	400		SoFP
5 year loan		10 000	SoFP
Loan interest	500
Rent and rates	4 862
Salaries	33 872
Machinery	8 000		SoFP
Drawings	12 715		SoFP
Purchases	141 195
Revenue (Sales)		205 471
Inventory at 1 January 2023	19 471
	294 232	294 232
Inventory at 31 December 2023		4 060	SoFP
Provision for depreciation of machinery		600	SoFP
Profit for the year		9 031	SoFP

Complete the statement of financial position.

• Assets

  • Non-current assets
  • Current assets

• Capital and liabilities

  • Capital
  • Non-current liabilities
  • Current liabilities

Note that the bank has a credit balance so this means it is overdrawn

Final answer: Bilal Aba Final answer:** Statement of Financial Position at 31 December 2023 **
	Final answer:****$	Final answer: $	Final answer: $
Final answer: Assets
Final answer: Non-current assets	Final answer: Cost	Final answer: Provision for depreciation	Final answer: Net book value
Final answer: Machinery	Final answer: 8 000	Final answer: 600	Final answer: 7 400
Final answer: Current assets
Final answer: Inventory		Final answer: 4 060
Final answer: Trade receivables		Final answer: 73 217
Final answer: Cash		Final answer: 400	Final answer: 77 677
Final answer: Total assets			Final answer: 85 077
Final answer: Capital and liabilities
Final answer: Capital
Final answer: Opening capital			Final answer:** 58 466
Final answer: Profit for the year			Final answer: 9 031
			Final answer: 67 497
Final answer: Less: Drawings			Final answer: 12 715
			Final answer: 54 782
Final answer: Non-current liabilities
Final answer: Loan			Final answer: 10 000
Final answer: Current liabilities
Final answer: Trade payables		Final answer: 19 745
Final answer: Bank overdraft		Final answer: 550	Final answer: 20 295
Final answer: Total capital and liabilities			Final answer: 85 077