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    Statement of Financial Position: Business Studies

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    Upasana Chaube
    The document discusses the balance sheet, which shows a business's assets and liabilities at a point in time. It explains that assets include fixed assets, current assets, and intangible assets, while liabilities include long-term and short-term debts. The balance sheet is used to calculate financial ratios and evaluate the liquidity, leverage, and profitability of a business.

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    Statement of Financial Position: Business Studies

    Uploaded by

    Upasana Chaube
    40 views8 pages
    The document discusses the balance sheet, which shows a business's assets and liabilities at a point in time. It explains that assets include fixed assets, current assets, and intangible assets, while liabilities include long-term and short-term debts. The balance sheet is used to calculate financial ratios and evaluate the liquidity, leverage, and profitability of a business.

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    Business studies

    Original Title

    Statement of Financial

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    The document discusses the balance sheet, which shows a business's assets and liabilities at a point in time. It explains that assets include fixed assets, current assets, and intangible assets, while liabilities include long-term and short-term debts. The balance sheet is used to calculate financial ratios and evaluate the liquidity, leverage, and profitability of a business.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    40 views8 pages

    Statement of Financial Position: Business Studies

    Uploaded by

    Upasana Chaube
    The document discusses the balance sheet, which shows a business's assets and liabilities at a point in time. It explains that assets include fixed assets, current assets, and intangible assets, while liabilities include long-term and short-term debts. The balance sheet is used to calculate financial ratios and evaluate the liquidity, leverage, and profitability of a business.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    BUSINESS STUDIES

    STATEMENT OF FINANCIAL POSITION
    THE BALANCE SHEET
     The balance sheet, along with the income
    statement is prepared at the end of the financial
    year. It shows the value of a business’ assets
    and liabilities at a particular time. It is also
    known as ‘statement of financial position’.
    ASSETS 
     Assets are those items of value owned by the business.
     Fixed/non-current assets (buildings, vehicles, equipment etc.)
    are assets that remain in the business for more than a year –
    their values fall over time in a process
    called depreciation every year.
     Short-term/current assets (inventory, trade receivables (debts
    from customers), cash etc) are owned only for a very short
    time.
     There can also intangible (cannot be touched or felt) non-
    current assets like copyrights and patents that add value to the
    business.
    LIABILITIES
     Liabilities are the debts owed by the business to
    its creditors.
     Long-term/non-current liabilities (loans,
    debentures etc.)- they do not have to be repaid
    within a year.
     Short-term/current liabilities (trade payables (to
    suppliers), overdraft etc.)- these need to be repaid
    within a year.
     CURRENT ASSETS – CURRENT LIABILITIES =
    WORKING CAPITAL
    This is because the liquid cash a company has with them
    will be the liquid (short-term) assets they own less the
    short-term debts they have to pay.
     Shareholder’s Equity is the total amount of money
    invested in the company by shareholders. This will
    include both the share capital (invested directly by
    shareholders) and reserves (retained earnings reserve,
    general reserve etc.).
     Shareholders can see if their stake in the business has
    risen or fallen by looking at the total equity figure on
    the balance sheet.
     1.

    Check whether the equations on the right are satisfied in this balance sheet!
    SHAREHOLDERS EQUITY = TOTAL ASSETS – TOTAL LIABILITIES
    TOTAL ASSETS = TOTAL LIABILITIES + SHAREHOLDERS EQUITY
    CAPITAL EMPLOYED = SHAREHOLDERS EQUITY + NON-CURRENT
    LIABILITIES
    This is because non-current liabilities like loans are also used for permanent
    USES OF A STATEMENT OF FINANCIAL POSITION

     When the current assets subtotal is compared to the current


    liabilities subtotal, investors can estimate whether a firm has
    access to sufficient funds in the short term to pay off its
    short-term obligations i.e., whether it is liquid
     One can also compare the total amount of debt (liabilities) to
    the total amount of equity listed on the balance sheet, to see
    if the resulting debt-equity ratio indicates a dangerously
    high level of borrowing. This information is especially
    useful for lenders and creditors, (especially banks) who want
    to know if the firm will be able to pay back its debt
     Investors like to examine the amount of cash on
    the balance sheet to see if there is enough available
    to pay them a dividend
     Managers can examine its balance sheet to see if
    there are any assets that could potentially be
    sold off without harming the underlying business.
    For example, they can compare the reported
    inventory assets to the sales to derive an inventory
    turnover level, which can indicate the presence of
    excess inventory, so they will sell off the excess
    inventory to raise finance

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