A statement of financial position shows the value of a business on a particular date.
A balance sheet shows:
|Statement of financial position for Business Ltd as at 31 March 2019|
|Cash at bank||£50,000|
|Less current liabilities|
|Net assets employed||£500,000|
|Equity and reserves|
|Profit for the year||£100,000||£400,000|
Non-current assets show the current value of major purchases that help in the running of the business, like delivery vans, premises or PCs.
In this case £150,000 of non-current assets are owned. Non-current assets are usually owned for longer than a year.
Current assets show the cash or near-cash available to the firm. This includes stock ready to sell, money owed to them by debtors and cash in the bank.
There are £25,000 worth of current assets. The value of current assets is likely to change in the short term.
Current liabilities are any debts a business owes that will need to be paid back within a year (short-term debts).
Deducting all the current liabilities from the total amount of fixed and current assets gives the value of the business on the day the balance sheet was drawn up.
This business is worth £75,000, financed by £75,000 of share capital and reserves. Capital and reserves are in effect liabilities, because the firm owes this money to the owners. What a firm owns, it owes.
Working equity is money that a business can access immediately, rather than money that is tied up in investments or property.
A business is solvent if it can meet its short-term debts when they are due for payment. To do this it needs adequate working equity.
You can calculate a firm's working equity by using the following equation:
Non-current liabilities usually include long-term loans such as a long-term bank loan or debentures that do not need paid back within a year.
In this case the businses has non-current liabilities worth £100,000
It shows the overall worth of the business. In this case the overall worth of the business is £400,000.
Equity and reserves show the money that has been invested by the owners and any profit that has been kept by the business (retained profits).