Trial Balance
Financial statements · Topic 2 of 7

Sole trader statement of financial position

The balance sheet of a small business owned by one person, explained line by line, with how to build it and how to read it.

ACCA exams this helps with: FA Financial Accounting See the ACCA map

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The statement of financial position (often called the balance sheet) shows what a business owns and owes on one particular day, usually the last day of the year. What is left after taking what it owes away from what it owns belongs to the owner. The two halves of the statement must always show the same total.

Example. On 31 December, a deli owns equipment, stock and cash worth £35,050 and owes £14,050. The difference, £21,000, is the owner’s capital.

Key words

Current
Expected to be turned into cash, used up or paid within 12 months of the year end.Example: Stock and money owed by customers are current assets. A supplier bill due next month is a current liability.
Non-current
Expected to be kept, used or owed for more than 12 months after the year end.Example: A delivery van is a non-current asset. A bank loan repayable in 5 years is a non-current liability.
Net book value (NBV)
An asset’s cost minus all the depreciation charged on it so far. It is the value shown in the accounts.Example: A van cost £12,000 and has £3,000 of depreciation, so its net book value is £9,000.
Net assets
Total assets minus total liabilities. It equals the owner’s equity.Example: Assets £12,500 − liabilities £900 = net assets £11,600.
Drawings
Money or goods the owner of a business takes out for their own personal use. Drawings reduce the owner’s capital. They are not a business expense.Example: A sole trader takes £200 from the till to buy personal shopping. That is £200 of drawings.

The statement, explained

Amira Khan, trading as Khan’s Deli 1
Statement of Financial Position
as at 31 December 2025
2025
£		2024
£
Non-current assets 2
Shop equipment at cost32,00032,000
Less: Accumulated depreciation 3(16,000)(12,800)
Net book value16,00019,200
Current assets 4
Inventory 57,1006,200
Trade receivables1,300900
Prepayments 6150120
Cash at bank10,5006,410
Total current assets19,05013,630
Current liabilities 7
Trade payables5,6005,100
Accruals 6450380
Total current liabilities(6,050)(5,480)
Net current assets 813,0008,150
Non-current liabilities 9
Bank loan (repayable 2029)(8,000)(10,000)
Net assets 1021,00017,350
Capital 11
Opening capital 1217,35015,350
Add: Net profit for the year 1330,15026,000
Less: Drawings 14(26,500)(24,000)
Closing capital 1521,00017,350

What each numbered line means

  1. Heading. “As at 31 December 2025” means the figures show the position on that one day. This is different from the income statement, which covers a whole year.
  2. Non-current assets. Things the business owns and will use for more than a year. Here it is the shop equipment.
  3. Accumulated depreciation. All the depreciation charged since the equipment was bought: £12,800 at the start of the year + £3,200 this year = £16,000. Cost minus accumulated depreciation is the net book value, £16,000.
  4. Current assets. Things the business owns that will be turned into cash, or used, within 12 months. They are listed from least to most like cash.
  5. Inventory. The same closing inventory figure (£7,100) that was deducted in the income statement.
  6. Prepayments and accruals. These come from the year-end adjustments: insurance paid in advance (£150, an asset) and electricity owed (£450, a liability).
  7. Current liabilities. Amounts the business must pay within 12 months.
  8. Net current assets. Current assets minus current liabilities, also called working capital. £13,000 means the deli could pay all its short-term bills from its short-term assets.
  9. Non-current liabilities. Amounts owed that are due after more than 12 months, here a bank loan. It fell by £2,000 because some was repaid.
  10. Net assets. Non-current assets + net current assets − non-current liabilities: £16,000 + £13,000 − £8,000 = £21,000. This is what the business is worth to the owner, based on the accounts.
  11. Capital. The owner’s stake in the business. This section shows how it changed during the year.
  12. Opening capital. Last year’s closing capital (£17,350 in the 2024 column).
  13. Net profit. Taken from the income statement. Profit belongs to the owner, so it increases capital.
  14. Drawings. Money Amira took out for herself. It reduces capital. It is not an expense.
  15. Closing capital. £17,350 + £30,150 − £26,500 = £21,000. It must equal net assets. If the two figures are different, there is a mistake somewhere.

How to read it

  1. Check it balances: net assets (£21,000) = closing capital (£21,000).
  2. Look at liquidity. Current ratio = £19,050 ÷ £6,050 = 3.15 : 1, up from 2.49 : 1. The deli can easily pay its short-term bills.
  3. Look at cash. Cash rose from £6,410 to £10,500, even after repaying £2,000 of the loan.
  4. Look at the non-current assets. Half of the equipment’s cost has been depreciated (£16,000 of £32,000). At 10% a year, it is about 5 years from being fully written off, so new equipment may be needed.
  5. Look at the capital. It grew by £3,650 (profit £30,150 − drawings £26,500). The owner is taking out most of the profit.

Watch it explained

Press play to watch the animation, or step through it at your own pace with the arrows.

Videos from YouTube tutors

These videos are made by independent tutors on YouTube, not by Trial Balance. Some use US terms or older exam names (for example F7 for FR), but the principles are the same.

How to make it yourself

This uses the same trial balance and adjustments as the income statement page. Net profit for the year, from the income statement, is £30,150.

Trial balance at 31 December 2025

AccountDr £Cr £
Shop equipment at cost32,000
Accumulated depreciation at 1 January 202512,800
Inventory at 1 January 20256,200
Purchases98,300
Sales186,400
Wages32,500
Rent and rates14,400
Electricity4,200
Insurance2,000
Advertising1,200
Sundry expenses1,050
Trade receivables1,300
Cash at bank10,500
Trade payables5,600
Bank loan (repayable 2029)8,000
Capital at 1 January 202517,350
Drawings26,500
Totals230,150230,150

Year-end adjustments

  • Closing inventory at 31 December 2025 was counted and valued at £7,100.
  • Electricity of £450 for December has not been billed yet (an accrual).
  • Insurance of £150 has been paid for January 2026 (a prepayment).
  • Depreciate shop equipment at 10% of cost per year.

Steps

  1. Write the heading with “as at 31 December 2025”.
  2. Non-current assets: equipment at cost £32,000, less accumulated depreciation of £12,800 + this year’s £3,200 = £16,000, which gives a net book value of £16,000.
  3. Current assets: closing inventory £7,100 (adjustment), trade receivables £1,300, the prepayment £150 (adjustment), and cash at bank £10,500. Total £19,050.
  4. Current liabilities: trade payables £5,600 and the electricity accrual £450 (adjustment). Total £6,050.
  5. Net current assets: £19,050 − £6,050 = £13,000.
  6. Non-current liabilities: the bank loan of £8,000, which is due after more than a year.
  7. Net assets: £16,000 + £13,000 − £8,000 = £21,000. Double-underline it.
  8. Capital: opening capital £17,350 (trial balance) + net profit £30,150 − drawings £26,500 = £21,000.
  9. Check: closing capital equals net assets. If the two figures don’t agree, check each adjustment has been used twice, once in each statement.

Fill it in yourself

Type or choose your answers, then press Check answer. Questions with a New numbers button can be repeated with different figures.