Key definitions
The statement of financial position (balance sheet) is used by stakeholders to measure the stability of the business.
- Assets — items that are owned by a business.
- Non-current assets — assets that are owned by a business for more than a year, e.g. vehicles, machinery.
- Current assets — assets in a business that are not held for more than a year, e.g. inventory, cash.
- Liabilities — debts owed to creditors by a business.
- Non-current liabilities — liabilities that will be repaid in more than one year.
- Current liabilities — liabilities that will be repaid in one year or less.
Worked example: a balance sheet
| Item | Amount |
|---|
| Machinery | 30,000 |
| Equipment | 10,000 |
| Total non-current assets | 40,000 |
| Cash | 100,000 |
| Inventory | 50,000 |
| Total current assets | 150,000 |
| (−) Current liabilities: Overdraft | 2,000 |
| Working capital | 148,000 |
| Total assets | 185,000 |
| (−) Non-current liabilities: Bank loan | 30,000 |
| Net assets | 155,000 |
Capital and Reserves
| Item | Amount |
|---|
| Share Capital | 100,000 |
| Accumulated Profit | 55,000 |
Capital and reserves definitions
- Share capital — the money raised by a business through issuing shares.
- Accumulated profit — money after dividends are given out to shareholders.