Skip to main content
ScotlandAccountingSyllabus dot point

How do you prepare a statement of financial position (balance sheet) for a sole trader, classifying non-current and current assets, current and non-current liabilities, and the capital section?

Preparing a statement of financial position (balance sheet) for a sole trader, classifying non-current and current assets, current and non-current liabilities, and presenting the capital section with profit and drawings.

A focused answer to the SQA National 5 Accounting content on the statement of financial position, covering the classification of non-current and current assets, current and non-current liabilities, the calculation of working capital, and the capital section showing opening capital plus profit less drawings.

Generated by Claude Opus 4.811 min answer

Reviewed by: AI editorial process; not yet individually human-reviewed

Have a quick question? Jump to the Q&A page

Jump to a section
  1. What this dot point is asking
  2. What the statement shows
  3. Classifying assets
  4. Classifying liabilities
  5. The capital section
  6. Examples in context
  7. Try this

What this dot point is asking

The SQA wants you to prepare a statement of financial position (balance sheet) for a sole trader: classify assets as non-current or current, classify liabilities as current or non-current, calculate working capital, and present the capital section (opening capital plus profit, less drawings).

What the statement shows

While the income statement covers a period, the statement of financial position is a snapshot at a single date - usually the last day of the financial year. It restates the accounting equation, Assets == Capital ++ Liabilities, in a vertical layout.

Classifying assets

Assets are split by how long the business expects to keep them.

  • Non-current assets are held for long-term use: premises, machinery, equipment, vehicles, fixtures and fittings. They are shown at cost less accumulated depreciation (their carrying value).
  • Current assets are expected to turn into cash within a year, listed in order of how hard they are to turn into cash: inventory, then trade receivables (debtors), then bank, then cash.

Classifying liabilities

Liabilities are split by when they fall due.

  • Current liabilities are due within a year: trade payables (creditors), a bank overdraft, and accruals.
  • Non-current liabilities are due after more than a year: a bank loan or mortgage.

The capital section

The owner's capital is not a fixed figure. During the year the profit for the year (from the income statement) increases it, and drawings - cash or goods the owner takes for personal use - reduce it.

Examples in context

A bank deciding on an overdraft looks straight at the statement of financial position: it checks the working capital to see whether current assets cover current liabilities, and the capital to see how much the owner has invested. A healthy working capital and a growing capital figure reassure the lender. Preparing this statement cleanly, with each item in the right class, is the skill this dot point tests.

Try this

Q1. Classify a delivery van and a bank overdraft. [2 marks]

  • Cue. Van: non-current asset. Overdraft: current liability.

Q2. Current assets £15000\pounds 15000, current liabilities £9000\pounds 9000. Find working capital. [1 mark]

  • Cue. 15000−9000=£600015000 - 9000 = \pounds 6000.

Q3. Opening capital £25000\pounds 25000, profit £8000\pounds 8000, drawings £6000\pounds 6000. Find closing capital. [2 marks]

  • Cue. 25000+8000−6000=£2700025000 + 8000 - 6000 = \pounds 27000.

Exam-style practice questions

Practice questions written in the style of SQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

SQA N5 style5 marksA sole trader has premises 40000 pounds, inventory 6000 pounds, trade receivables 4000 pounds, bank 2000 pounds, trade payables 5000 pounds and a bank loan (repayable in five years) 20000 pounds. Calculate total assets, total liabilities and the working capital.
Show worked answer →

Non-current assets: premises £40000\pounds 40000. Current assets: inventory £6000\pounds 6000 + trade receivables £4000\pounds 4000 + bank £2000\pounds 2000 = £12000\pounds 12000 (1 mark). Total assets =40000+12000=£52000= 40000 + 12000 = \pounds 52000 (1 mark). Current liabilities: trade payables £5000\pounds 5000; non-current liabilities: bank loan £20000\pounds 20000; total liabilities =£25000= \pounds 25000 (1 mark). Working capital == current assets −- current liabilities =12000−5000=£7000= 12000 - 5000 = \pounds 7000 (1 mark for method, 1 mark for the answer). Markers reward classifying the five-year loan as non-current and the working-capital calculation.

SQA N5 style4 marksA sole trader's opening capital was 30000 pounds. The profit for the year was 11000 pounds and drawings were 8000 pounds. Calculate the closing capital and explain why drawings are deducted.
Show worked answer →

Closing capital == opening capital ++ profit for the year −- drawings =30000+11000−8000=£33000= 30000 + 11000 - 8000 = \pounds 33000 (1 mark for adding profit, 1 mark for deducting drawings, 1 mark for the closing capital). Drawings are amounts the owner has taken out of the business for personal use, so they reduce the owner's investment and are deducted from capital, not treated as a business expense (1 mark). Markers reward the closing capital figure and a clear reason that drawings reduce the owner's capital rather than being an expense of the business.

Related dot points

Sources & how we know this