How do we show what a sole trader owns and owes at a single date?
Prepare the statement of financial position of a sole trader and show the capital section
A simple answer to the N(A)-Level Principles of Accounts outcome on the statement of financial position. How to set out non-current and current assets, liabilities, and the capital section with profit and drawings.
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What this dot point is asking
SEAB wants you to prepare the statement of financial position of a sole trader, including the capital section. This is the second main statement: a snapshot of what the business owns and owes at one date. The central insight is that it is the accounting equation set out in full, with assets on one side equal to capital plus liabilities on the other, and the capital section showing how profit and drawings changed the owner's stake.
The answer
What it shows
The statement of financial position lists, at a single date:
- Assets: non-current first (equipment, premises), then current (inventory, receivables, prepayments, bank, cash).
- Liabilities: non-current (long-term loan), then current (trade payables, accruals, overdraft).
- Capital: the owner's stake.
It always balances because assets equal capital plus liabilities.
The order of assets
| Section | Items |
|---|---|
| Non-current assets | Premises, equipment, motor vehicles (at net book value) |
| Current assets | Inventory, trade receivables, prepayments, bank, cash |
Non-current assets are shown at net book value (cost less accumulated depreciation).
The capital section
The capital section explains the owner's stake during the year:
If the owner put in more capital during the year, that is added too. The closing capital must equal net assets (assets minus liabilities).
Net assets
This check, net assets equal closing capital, confirms the statement balances.
Examples in context
Example 1. How profit reaches the owner. A sole trader makes \12,000\ in drawings, so capital grows by \5,000$. The capital section makes this visible, adding the profit and subtracting the drawings, so the owner can see the business is building up rather than being drained. This links the income statement result to the owner's stake.
Example 2. Net book value, not cost. A business bought equipment for \20,000\ accumulated depreciation. The statement shows it at \12,000\. This stops the assets looking overstated and reflects that part of the cost has already been charged to profit through depreciation.
Try this
Q1. State the formula for closing capital. [2 marks]
- Cue. Opening capital profit for the year drawings (plus any new capital introduced).
Q2. Total assets are \30,000\. State the closing capital. [1 mark]
- Cue. Net assets = 30\,000 - 11\,000 = \19,000$, which equals closing capital.
Q3. Explain why non-current assets are shown at net book value rather than cost. [2 marks]
- Cue. Part of the cost has been charged as depreciation, so net book value (cost less accumulated depreciation) shows the cost not yet written off.
Exam-style practice questions
Practice questions written in the style of SEAB exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Original6 marksA sole trader's capital at the start of the year was \20\,000\ and drawings were \5\,000$. Calculate the closing capital and show the capital section.Show worked answer →
Closing capital opening capital profit drawings.
- Opening capital \20,000$
- Add profit for the year \8,000\
- Less drawings \5,000$
- Closing capital = \23,000$.
What markers reward: adding profit and subtracting drawings in the right order, and the closing capital of \23,000$.
Original6 marksFrom these balances, prepare the assets side and check it equals capital plus liabilities: equipment \12\,000\; trade receivables \2\,000\; trade payables \2\,000\.Show worked answer →
Non-current assets: equipment \12,000$.
Current assets: inventory \3,000 +\ bank \1,000 = \.
Total assets = 12\,000 + 6\,000 = \18,000$.
Capital plus liabilities capital \16,000 +\2\,000 = \18,000$.
The two sides agree at \18,000$, so the statement balances.
What markers reward: assets split into non-current and current, the correct totals, and showing that total assets equal capital plus liabilities.
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