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The income statement tells you how the business did over the year. The statement of financial position tells you where it stands on the last day of that year: what it owns, what it owes, and what belongs to the owner. In the exam, the two questions usually come together.

A sole trader’s statement of financial position lists non-current assets and current assets, then shows how they are financed by capital and liabilities. The two totals must agree. Below is the layout, a worked example that follows on from the income statement example, and the mistakes that cost the most marks.

The layout, line by line

1. Heading: the business name, “Statement of financial position”, and “at” the date. It shows one moment, so it is “at 31 December”, never “for the year ended”.
2. Non-current assets: items kept for use over more than a year, shown at cost, less accumulated depreciation, giving net book value.
3. Current assets: inventory, trade receivables, other receivables (such as prepayments), bank and cash.
4. Total assets.
5. Capital: opening capital, plus profit for the year (or less a loss), less drawings, giving closing capital.
6. Non-current liabilities: amounts owed that are due after more than a year.
7. Current liabilities: trade payables, other payables (such as accruals), and any bank overdraft.
8. Total capital and liabilities, which must equal total assets.

A worked example

This continues the example from the income statement article. Aminath’s stationery shop made a profit for the year of $11,450. Her closing inventory was $8,200, and depreciation of $2,100 was charged on her fixtures. Her other balances at 31 December 2025 were:

Fixtures and fittings at cost	$21,000
Accumulated depreciation on fixtures (including this year’s $2,100)	$6,300
Trade receivables	$5,600
Bank	$8,950
Cash	$250
Trade payables	$5,800
Wages owing (accrued)	$450
Loan (repayable in 2029)	$5,000
Capital at 1 January 2025	$24,000
Drawings for the year	$9,000

Try it yourself first, then check against the answer.

Aminath
Statement of financial position at 31 December 2025

	$	$	$
Non-current assets	Cost	Accumulated depreciation	Net book value
Fixtures and fittings	21,000	6,300	14,700
Current assets
Inventory		8,200
Trade receivables		5,600
Bank		8,950
Cash		250	23,000
Total assets			37,700
Capital and liabilities
Capital at 1 January 2025		24,000
Add Profit for the year		11,450
		35,450
Less Drawings		9,000	26,450
Non-current liabilities
Loan (repayable in 2029)			5,000
Current liabilities
Trade payables		5,800
Other payables (wages owing)		450	6,250
Total capital and liabilities			37,700

Both totals are $37,700, so the statement balances. Notice how the income statement feeds in: the profit for the year goes into capital, the closing inventory becomes a current asset, and this year’s depreciation is already inside the accumulated depreciation figure. The loan is not due until 2029, more than a year away, so it is a non-current liability.

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Where each item goes, and why

• Non-current assets are shown at net book value, because part of their cost has already been used up and charged as depreciation.
• Inventory appears here at its closing value. It is the same figure you subtracted in cost of sales.
• Prepayments (expenses paid in advance) are other receivables, a current asset. Accruals (expenses still owing) are other payables, a current liability.
• Drawings reduce capital. They belong here, never in the income statement.
• A bank overdraft is money owed to the bank, so it is a current liability, not a negative asset.

Six mistakes that lose marks

1. “For the year ended” in the heading. This statement is “at” a date.
2. Showing only one figure for non-current assets. Show cost, accumulated depreciation and net book value.
3. Using the opening inventory. It is always the closing inventory.
4. Getting capital wrong. Opening capital plus profit less drawings. Adding drawings, or forgetting them, is the most common error.
5. Swapping accruals and prepayments. Owing is a liability. Paid in advance is an asset.
6. Forcing it to balance. If your totals differ, the difference is usually an item in the wrong section or a missed adjustment. Find it rather than inventing a figure; the examiner can see where the marks were lost.

How to practise this

Practise the two statements together, because that is how they usually appear. Write the income statement first, carry the profit and closing inventory across, then build the statement of financial position. Time yourself, and when it does not balance, note in your error log what caused it. How to revise IGCSE and O Level Accounting sets out the full method.