Prepare the statement of financial position of a sole proprietor, including the capital account section

What this dot point is asking

SEAB wants you to prepare a sole proprietor's statement of financial position, including the capital account section. The central insight is that the statement reports the business's position at a date and is the accounting equation made visible: total assets equal capital plus liabilities, and the capital section shows how profit and drawings have changed the owner's stake over the year.

The answer

The structure

Assets are listed first (non-current then current), then capital, then liabilities (non-current then current):

Non-current assets are shown at carrying amount (cost less accumulated depreciation).

The capital section

For a sole proprietor, the capital account ties the income statement to the position:

Profit (from the income statement) increases the owner's stake; drawings reduce it. The closing capital must equal net assets (total assets less total liabilities), because that is the accounting equation rearranged.

Net current assets (working capital)

A useful sub-total:

It measures the short-term funds available to meet day-to-day bills. A positive figure suggests the business can pay its current liabilities from its current assets.

Examples in context

Example 1. Reading the owner's year. A trader's capital section shows opening capital \40,000$, profit$\$25,000$ and drawings \30,000$, giving closing capital$\$35,000$. Even though the business made a good profit, the owner withdrew more than was earned, so the stake fell. The capital section makes this story clear at a glance.

Example 2. A liquidity warning. A shop reports current assets of \15,000$and current liabilities of$\$22,000$, so net current assets are negative \7,000$. The classification shows the owner that short-term debts exceed short-term resources, signalling possible difficulty paying bills, without any extra calculation.

Try this

Q1. State the formula for closing capital of a sole proprietor. [2 marks]

• Cue. Closing capital $=$ opening capital $+$ profit for the year $+$ capital introduced $-$ drawings.

Q2. Current assets are \24,000$and current liabilities$\$15,000$. State the net current assets. [1 mark]

• Cue. Net current assets = 24\,000 - 15\,000 = \9,000$.

Q3. Opening capital is \50,000$, profit$\$20,000$ and drawings \12,000$. State the closing capital. [2 marks]

• Cue. Closing capital = 50\,000 + 20\,000 - 12\,000 = \58,000$.