2.4 Drawing up a Statement of Financial Position

In practice and in examinations， it is usual to prepare final financial statements from the information given in the trial balance．Let's look again at the post—statement of profit or loss trial balance of G． John in Exhibit 2.4， and prepare the statement of financial position．

The statement of financial position for G． John as at 31 December 20×1， using net asset presentation is shown in Exhibit 2.5.

Note：

（a） There are four categories of entries shown in this statement of financial position． In practice， the fifth， non-current liabilities， often appears． It is positioned after the current liabilities； and its total is added to the total of current liabilities to get the figure for total liabilities．

（ b） The figure for each item within each category should be shown and a total for the category produced is shown below them． An example of this is the ￡ 25，100， total of current assets．

（c） The total for non-current assets is added to the total for current assets and the total is labelled ‘total assets’．

（d） The total for current liabilities is added to the total for non-current liabilities and the total is labelled ‘total liabilities’．

（e） The total liabilities amount is subtracted from the total assets to get an amount labelled ‘net assets’． This amount will be the same as the total capital （which， in company financial statements， is called ‘total equity’）．

（f） You do not write the word ‘account’ after each item．

（g） The owners will be most interested in their capital and the reasons why it has changed during the period． To show only the final balance of ￡ 21，000 means that the owners will not know how it was calculated． So we show the full details of the capital account．

（h）The difference between current assets and total liabilities is known as‘net current assets’ or‘working capital’ and is the amount of resources the business has in a form that is readily convertible into cash． This figure is not shown in the statement of financial position but is easy to produce from a completed statement of financial position．

The statement of financial position for G． John as at 31 December 20×1， using total asset presentation is shown as Exhibit 2.6.It also shows where this would be if G． John had any noncurrent liabilities．

Summary

·All balances remaining on a trial balance after the statement of profit or loss for a period has been drawn up are displayed in a statement of financial position dated ‘as at’ the last day of the period．

·The meanings of the terms non-current asset， current asset， current liability， and noncurrent liability．

·List non-current assets in descending order starting with those that will remain in use in the business for the longest time．

·List current assets from top to bottom in increasing order of liquidity， with cash as the final item．

·There are two categories of liabilities， current liabilities and non-current liabilities．

·Current assets less current liabilities are known as‘ net current assets’ or‘working capital’．

·Capital refers to the amount of money invested in the business by the owner（ s）． This can take the form of cash introduced or profits not withdrawn．

·The statement of financial position follows the basic accounting equation． It can be presented in different format．

·The statement of financial position is not part of double entry． CrELi6xZakt0pF1RkZH7P0hLLelY3B8VPmtKw2N16Y5/2uH8dSzXTDVpnvkDmSyD