Statement of financial position

• What does the statement of financial position represent?

  A snapshot of equity, assets, and liabilities
• How is the statement of financial position similar to a photo?

  It captures a business's status at one time
• Why is the statement of financial position sometimes called a balance sheet?

  It balances total net assets with total equity
• What is included in total equity?

  Share capital and retained profits
• What are retained profits also known as?

  Retained earnings
• What is the difference between total assets and total net assets?

  Total net assets account for liabilities
• How do you calculate total net assets?

  Add non-current and current assets, subtract liabilities
• What are non-current assets?

  Long-term assets like property and machines
• What are current assets?

  Short-term assets like cash and debtors
• What are non-current liabilities?

  Long-term debts like bank loans
• What are current liabilities?

  Short-term debts like creditors and taxes
• If total non-current assets are $40\text{ million pounds}$ and total current assets are $15\text{ million pounds}$, what is the total before liabilities?


  $55\text{ million pounds}$
• If total liabilities are $35\text{ million pounds}$, what is the total net assets if total assets are $55\text{ million pounds}$?


  $20\text{ million pounds}$
• How do total net assets and total equity relate?

  They must balance in the balance sheet
• What does a balance sheet indicate about a business's net worth?

  It shows the net worth through total equity
• What components make up the statement of financial position?

  • Total equity
  • Total net assets
  • Non-current assets
  • Current assets
  • Non-current liabilities
  • Current liabilities
• What is the process to balance a balance sheet?

  1. Calculate total net assets:

  • Add non-current and current assets
  • Subtract non-current and current liabilities

  1. Ensure total net assets equals total equity