The Main Features of a Statement of Financial Position (Cambridge International IGCSE Business)

An introduction to the statement of financial position

Spec point — "• The main classifications of assets and liabilities, using examples"

An introduction to 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 businesses 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 the net assets are equal to the total equity

Different types of assets

• Assets are items owned by a business

  • Non-current assets are owned by a business in the long-term

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

    • The four types of current assets are cash in hand, cash in bank, debtors (trade receivables) and inventory (stock)

Different types of 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

    • E.g. Long-term loans such as mortgages

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

    • E.g.Creditors (trade payables) and bank overdrafts