statement of financial position

Creditors are owed money by the business - for example a builder might have bought wood from a timber yard, but not paid for it yet. The timber yard is the builder's creditor. This is also called trade credit

Debtors owe money to the business - for example Sainsbury would be a debtor to Heinz. Heinz will have supplied beans to Sainsbury, which Sainsbury have not paid for yet.

Businesses need enough cash and other current assets to cover their short term debt. This is called their working capital

Current assets - current liabilities = working capital

Working capital is also known as net current assets

current assets: stock £5m, cash £3, debtors, £2

Current liabilities: overdraft £1m, trade credit £3m

Working capital = current assets - current liabilities

working capital = £10m - £4m

working capital = £6m

Capital means all the investment into the business by the owner

This could be at the start - called start up capital

This could also be previous years' profits reinvested in the business (called retained profit)

Other words for capital are equity or shareholders equity

Add up all the current and fixed assets to get total assets

Add up all the liabilities - current and non current to get total liabilities

Total assets - total liabilities = net assets

Gives an idea of how much the business is worth

Says what would be left over, if all the assets were sold and the money was used to pay off all the debts

Net assets = the value of assets which haven't be paid for from loans

If these assets haven't been paid for from loans they must have been paid for from owners start up capital or retained profits