The statement of financial position Cambridge IGCSE Business Studies revision
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In plain words
On any one day a business owns some things and owes some money. Listing the two side by side shows what the business is worth and how it has been paid for.
That list is the statement of financial position, which used to be called the balance sheet.
6 things to know
- A statement of financial position shows the assets and liabilities of a business at a particular date.
- Assets are what it owns. Non-current assets are kept for more than a year: buildings, machinery, vehicles. Current assets are cash, or will become cash within a year: inventories, money owed by customers (trade receivables) and cash.
- Liabilities are what it owes. Current liabilities are due within a year: money owed to suppliers (trade payables) and an overdraft. Non-current liabilities are due after more than a year: long-term loans.
- Working capital = current assets − current liabilities.
- Capital employed is the long-term money invested in the business: the owners' capital plus non-current liabilities.
- Reading it tells you what the business owns, how it is financed (by its owners or by lenders), and whether it can pay its short-term debts.
Worked example
A business has non-current assets of $300 000, current assets of $80 000 and current liabilities of $50 000. Find its working capital.
- Working capital = current assets − current liabilities.
- Working capital = 80 000 − 50 000.
- Working capital = $30 000.
Tips and tricks
- Current means within one year. That one word sorts every asset and every liability.
- Inventories are an asset, not a cost: they are goods the business owns and expects to sell.
It lands in your notebook with its questions as flashcards.
The statement of financial position: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which is a non-current asset?
It is kept and used for more than a year.
Which is a current liability?
Money owed to suppliers is due within a year.
Current assets are $60 000 and current liabilities are $48 000. What is the working capital?
60 000 − 48 000 = $12 000.
What are trade receivables?
Customers who bought on credit still have to pay.
A statement of financial position shows the position of a business
It is a snapshot of one day.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 7 marks. Write your answers on paper, then check them.
The statement of financial position
Cambridge IGCSE Business Studies 0450 · 7 marks · papermunch.org
Name ______________________________ Date ______________
Give one example of a non-current asset and one example of a current liability.[2]
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Non-current asset: machinery (or buildings, vehicles). Current liability: trade payables (or an overdraft).
A business has current assets of $45 000 and current liabilities of $30 000. Calculate its working capital.[2]
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$15 000. 45 000 − 30 000.
Explain what a lender could learn from a business's statement of financial position.[3]
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It shows how much the business has already borrowed and what assets it owns that could be security for a loan. It also shows whether it has enough current assets to pay its short-term debts.
Answers: The statement of financial position
- 1. Non-current asset: machinery (or buildings, vehicles). Current liability: trade payables (or an overdraft).
- 2. $15 000. 45 000 − 30 000.
- 3. It shows how much the business has already borrowed and what assets it owns that could be security for a loan. It also shows whether it has enough current assets to pay its short-term debts.