Read a statement of financial position
Interpret the statement at a date, classify its main items, calculate net current assets and net assets, and connect its equity to performance.
Cambridge International AS & A Level Business 9609, 2026–2028 syllabus and 2029 syllabus, section 10.1.2. Ratio calculations use the formulae listed in the relevant Cambridge syllabus. Written practice is self-checked. Specialist review has not been completed for this lesson; these exercises do not award an official mark or establish exam readiness.
Before you begin
- Read the figures, dates and assumptions supplied in the question before calculating or interpreting an accounting result.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What does the statement of financial position show?
What you will learn
- Explain the purpose and date of the statement
- Classify assets, liabilities, net current assets, net assets and equity
- Amend supplied items and relate profit, inventory and depreciation to the position
A position statement is a snapshot
A statement of financial position shows recognised assets, liabilities and equity at a specified date. Current assets include items expected to be converted into cash or used in the operating cycle; non-current assets support the business over a longer period. Current liabilities fall due in the short term, while non-current liabilities are due later.
Net current assets (working capital) = current assets−current liabilities. Net assets = total assets−total liabilities; in the presented statement this equals reserves and equity. Use the figures and classifications supplied rather than assuming every item has the same timing or liquidity.
Changes can connect both statements
Profit retained in the business can increase retained earnings within equity, although dividends and other movements also matter. Depreciation reduces the carrying amount of a non-current asset and is an expense in the statement of profit or loss.
An inventory write-down can reduce current assets and, through cost or expense recognition, profit. A transaction on credit may change assets and liabilities before cash is paid. Amend the affected items consistently, and check that the accounting equation still balances.
Pause and explain
Current assets are $90,000 and current liabilities are $65,000. What are net current assets?
Worked example
At year end, a company has non-current assets of $180,000, current assets of $82,000, current liabilities of $52,000 and non-current liabilities of $70,000. Calculate net current assets, net assets and the equity/reserves total needed to balance the statement.
Show the worked solution
- Net current assets = 82,000−52,000=$30,000.
- Total assets = 180,000+82,000=$262,000.
- Total liabilities = 52,000+70,000=$122,000; net assets/equity = 262,000−122,000=$140,000.
Answer Net current assets are $30,000. Net assets are $140,000, so the statement balances when equity and reserves total $140,000.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Total assets are $420,000 and total liabilities are $275,000. Find net assets and the balancing equity/reserves figure.
Give me a hint
Apply assets−liabilities and use the statement's balancing relationship.
Compare my reasoning
- Net assets = total assets−total liabilities.
- Calculate 420,000−275,000.
- Equity and reserves must equal net assets in the balanced statement.
Net assets are $145,000, so equity and reserves together are $145,000.
Look for these in your work
- Net assets are calculated correctly
- Liabilities are subtracted
- Balancing equity is stated
A business records $6,000 of straight-line depreciation at year end. State the direction of its effects on the two statements, before considering tax.
Give me a hint
Depreciation is an expense and also changes the asset's carrying value.
Compare my reasoning
- Record depreciation expense in the period.
- Profit from operations and profit before tax fall by $6,000.
- The non-current asset's carrying amount falls by $6,000.
Before tax effects, the statement of profit or loss includes $6,000 more expense and the statement of financial position shows a $6,000 lower carrying amount for the asset (or higher accumulated depreciation).
Look for these in your work
- Expense effect is identified
- Asset carrying value effect is identified
- Tax is not invented
A firm retains $18,000 of profit and pays a $5,000 dividend. Explain the likely direction for equity and cash, using only these facts.
Give me a hint
Retained profit adds to retained earnings; dividends distribute cash if paid, but payment timing matters.
Compare my reasoning
- Retained profit tends to add to retained earnings within equity.
- A dividend reduces retained earnings/equity when recognised.
- Do not infer the exact cash balance without payment timing and other transactions.
The retained $18,000 tends to increase retained earnings, while the $5,000 dividend reduces retained earnings/equity. Cash falls when the dividend is paid; these two facts alone do not determine the total cash change or ending cash balance.
Look for these in your work
- Equity movements are explained
- Dividend is distinguished from operating expense
- Cash timing is qualified
Common mistakes
- Describing the statement as performance over a period
- Subtracting current liabilities when calculating total assets
- Assuming net assets means only non-current assets
What can you explain now?
What does the statement of financial position show?
Compare with the explanation
Assets, liabilities and equity at a stated date
It is a snapshot, not a summary of the whole period.
After trying it yourself, choose your next review. This is your self-assessment.
Your review choice appears on Today. Sign in to sync it across devices.
Make it stick
How do current assets, current liabilities, net current assets, net assets, liabilities and equity fit together?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.