6.2.3 Statement Of Financial Position (Balance Sheet)

Revision Time: 7 minutes

The Statement of Financial Position, or Balance Sheet, shows how much money has been invested in an enterprise and what it has been spent on.

  • It is normally produced once a year, usually on the last day of the financial year
  • The statement is a snapshot of the enterprise’s financial situation on that day 

The basic equation of the Balance Sheet:

Net current assets = Current assets – current liabilities

Net Assets = Current Assets + Non-current Assets

Net assets = Capital Employed. They must always BALANCE. Essentially, the business is worth (assets) what has been invested (Financed by) and what it owes.


  • Assets represent what the company owns.
  • Liabilities represent what the company owes to external parties.
  • Capital Employed represents where the business got its money from.
  • Current means within 12 months
  • Non-current means longer than 12 months


Assets are things that the business owns (possesses). There are two types of assets:

  • Non-current (Fixed Assets) – long-term, used for profit over 12 months.
  • Current Assets – short-term, to be sold within 12 months

Non-Current (Fixed) Assets: These are assets that a company holds for the long term. Examples include:

  • Buildings: The company’s office or manufacturing facilities.
  • Equipment: Machinery and tools used for production.
  • Land: Property owned by the company.
  • Intangible Assets: Patents or trademarks that provide exclusive rights.

Current Assets: These are short-term assets that can be easily converted to Cash within a year. Examples include:

  • Cash: The company’s available cash on hand.
  • Accounts Receivable: Money owed by customers who haven’t paid yet.
  • Inventory: Goods held for sale or production.
  • Short-Term Investments: Investments that mature within a year.


Liabilities are things that the company owes (needs to pay out). There are two types of liabilities:

  • Current liabilities – these need to be paid in the next 12 months
  • Non-current liabilities – these need to be repaid long term, longer than 12 months, e.g. repaid over 5 years.

Current Liabilities: These are short-term obligations the company needs to settle within a year. Examples include:

  • Accounts Payable: Money owed to suppliers for goods or services.
  • Short-Term Loans: Loans that need to be repaid within a year.
  • Salaries Payable: Employee wages that haven’t been paid yet.

Non-Current Liabilities: These are long-term obligations that extend beyond a year. Examples include:

  • Long-Term Loans: Loans that are repaid over several years.
  • Bonds Payable: Debt securities issued by the company.
  • Deferred Tax Liabilities: Taxes that will be paid in the future.


Capital is where the business gets its money from (capital employed).

Share (Owners’) Capital: This represents the money invested by the company’s owners. Shares represent a percentage of ownership for investment. When you own shares of a company, you become a shareholder and hold a portion of that company’s ownership. Companies issue shares as a way to raise capital to fund their operations, investments, and growth initiatives.

Capital Employed: This is the total amount of capital used to run the business. It includes both share capital and debt. Examples include:

  • Share capital: The value of the owner’s investment in the company.
  • Long-Term Debt: Debt that’s due in more than a year.

Alternative Terminology

This is a new course and we don’t yet know the terminology that could be used in the exam. The following are alternative terms used to refer to these categories:

Current Assets:

  • Short-term Assets

Fixed Assets:

  • Long-term Assets
  • Non-current Assets

Current Liabilities:

  • Short-term Liabilities

Long-Term Liabilities:

  • Non-current Liabilities

6.2.3 Income Statement

6.2.4 Ratio Analysis