Key Concepts
The Statement of Financial Position (SoFP) is a financial statement that lists all the assets, liabilities, and equity of a business at a specific date. Unlike the Statement of Financial Performance (which covers a period), the SoFP is a snapshot at one point in time.
Classifying assets and liabilities:
| Classification | Definition | Examples |
|---|---|---|
| Non-current asset | Benefit lasts more than 1 financial year; not easily converted to cash | Motor vehicles, Property, Office equipment, Fixtures and fittings |
| Current asset | Benefit used within 1 financial year; expected to be sold, collected, or used up within 12 months | Inventory, Trade receivables, Cash at bank, Cash in hand |
| Non-current liability | Due to be repaid beyond 1 financial year | Bank loan (long-term portion) |
| Current liability | Must be settled within 1 financial year | Trade payables, Bank overdraft |
| Equity (sole proprietorship) | Owner's stake in the business | Capital |
Why are inventory, trade receivables, and cash classified as current assets?The classification is based on time, not value. Inventory is expected to be sold within the year; trade receivables are expected to be collected within the credit period (usually 30–90 days); cash needs no converting — it is already in the form the business can spend. None of these are held for long-term use in the business — they circulate as part of normal day-to-day operations.
Presentation order:
- Assets: non-current assets first, then current assets
- Liabilities: non-current liabilities first, then current liabilities
The capital section:
Capital appears as a single line in the SoFP, with the working shown in brackets on the same line:
Capital (opening capital + additional capital contributed + profit/(loss) − drawings) X
The four components that go into this calculation:
| Component | What it is |
|---|---|
| Opening capital | Capital balance at the start of the period |
| Add: Additional capital contributed | Any new capital the owner put in during the period |
| Add: Profit / Less: Loss | Net result from the Statement of Financial Performance |
| Less: Drawings | Cash or goods taken by the owner for personal use |
Format — Statement of Financial Position (Sole Proprietorship):
[Business Name]
Statement of Financial Position as at [day month year]
$ $
Assets
Non-current assets
[Asset name] X
[Asset name] X X
Current assets
Inventory X
Trade receivables X
Cash at bank X
Cash in hand X X
Total assets X
Equity and liabilities
Owner's equity
Capital (opening capital ± profit/loss − drawings) X
Non-current liabilities
Long-term borrowings X
Current liabilities
Trade payables X
Bank overdraft X X
Total equity and liabilities X
Total assets = Total equity and liabilities — this is always a check that the SoFP is correct.
"Non before Current" — non-current assets come before current assets; non-current liabilities come before current liabilities. Think of the SoFP as listing long-term items first in each section, short-term items second.
| Account | $ |
|---|---|
| Motor vehicles | 40,000 |
| Office equipment | 16,000 |
| Inventory | 8,000 |
| Trade receivables | 5,500 |
| Cash at bank | 32,000 |
| Trade payables | 3,500 |
| Bank loan (repayable 31 December 20X8) | 20,000 |
| Capital (1 January 20X5) | 60,000 |
| Drawings | 5,000 |
Profit for the year ended 31 December 20X5 was $23,000.
Required: Prepare the Statement of Financial Position as at 31 December 20X5.
- Non-current assets: Motor vehicles 40,000; Office equipment 16,000
- Current assets: Inventory 8,000; Trade receivables 5,500; Cash at bank 32,000
- Non-current liabilities: Bank loan (repayable 20X8) → recorded as Long-term borrowings*
- Current liabilities: Trade payables 3,500
- Equity: Capital (opening) 60,000; Profit 23,000; Drawings 5,000
Note:In the Statement of Financial Position, a bank loan is recorded under "Long-term borrowings" — not "Bank loan." Always use this label in your answer.
= 60,000 + 23,000 − 5,000 = $78,000
Good Catch Trading
Statement of Financial Position as at 31 December 20X5
| $ | $ | |
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Motor vehicles | 40,000 | |
| Office equipment | 16,000 | 56,000 |
| Current assets | ||
| Inventory | 8,000 | |
| Trade receivables | 5,500 | |
| Cash at bank | 32,000 | 45,500 |
| Total assets | 101,500 | |
| Equity and liabilities | ||
| Owner's equity | ||
| Capital (60,000 + 23,000 − 5,000) | 78,000 | |
| Non-current liabilities | ||
| Long-term borrowings | 20,000 | |
| Current liabilities | ||
| Trade payables | 3,500 | |
| Total equity and liabilities | 101,500 |
Listing current assets before non-current assets. The format always shows non-current assets first, then current assets.
Using opening capital as the final SoFP figure. Always calculate ending capital by applying profit (or loss) and deducting drawings. The opening capital figure is never used directly in the SoFP total.
Carrying a wrong profit/loss figure into the SoFP. The profit or loss figure comes directly from the Statement of Financial Performance. If that figure is wrong, the capital calculation in the SoFP will be wrong too — and the SoFP will not balance.