Financial Statements

• Statement of financial position or balance sheet is a record of everything a business owns and owes at a particular point in time
• Fixed assets are assets that stay in the business for more than a year
• Current assets are assets that are used or sold within a year
• Current liabilities are liabilities that are settled within a year
• Non-current liabilities are liabilities that are paid back over a longer period of time
• Working capital is the money available for the day-to-day running of the business
• Net assets are everything a business owns minus everything it owes
• Total equity is the total investment that has gone into the business

The statement of financial position, also known as the balance sheet, is a snapshot of a business’s assets and liabilities at a specific point in time. Fixed assets are long-term assets that stay in the business for more than a year, such as machinery and buildings. Current assets are short-term assets that are constantly being used or sold, including inventory, cash, and receivables. Current liabilities are short-term obligations that need to be settled within a year, such as payables and overdrafts. Non-current liabilities are long-term obligations that are paid back over a period of more than a year, like long-term loans and mortgages. Working capital is the money available for day-to-day operations and is calculated by subtracting current liabilities from current assets. Net assets represent the net worth of the business, calculated by subtracting all liabilities from all assets. Total equity is the total investment in the business, including owner’s savings, share capital, and retained profit. The income statement, or profit and loss account, shows a business’s profit or loss over a period of time. Revenue is the income received from selling products, while the cost of sales is the direct cost of making those goods. Gross profit is calculated by subtracting the cost of sales from revenue. Overheads are the fixed expenses of running the business, and operating profit is gross profit minus overheads. Other costs, such as finance costs and taxation, are subtracted from operating profit to determine net profit. These financial documents are important for stakeholders, including shareholders, suppliers, employees, and creditors, to assess company performance and make informed decisions.