I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

Equity

 is the residual interest in the assets of the entity after deducting all its liabilities.' 

(Conceptual Framework for Financial Reporting 2018, para. 4.63) 

 

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CHAPTER 1  

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  INTRODUCTION TO ACCOUNTING 

 

15 

6.1.4 Form of the statement of financial position 

A statement of financial position used to be called a balance sheet. The former name is apt because 

assets will always be equal to liabilities plus capital (or equity). An example of a very simple statement 

of financial position for a sole trader is shown below. 

A TRADER 

STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL 20X7 

 

 

$ 

 

$ 

Assets 

 

 

Plant and machinery 

 

 

55,000 

Inventory 

 

5,000 

 

Receivables (from customers) 

 

1,500 

 

Cash at bank 

 

   500 

 

 

 

 

  7,000 

Total assets 

 

 

62,000 

Capital 

 

 

Balance brought forward 

 

 

25,000 

Profit for the year 

 

 

10,400 

Balance carried forward 

 

 

35,400 

Liabilities 

 

 

Bank loan 

 

 

25,000 

Payables (to suppliers) 

 

 

  1,600 

Total capital plus liabilities 

 

 

62,000 

6.2 Statement of profit or loss  

A 

statement of profit or loss

 is a record of income generated and expenditure incurred over a given 

period. The statement shows whether the business has had more revenue than expenditure (a profit) or 

vice versa (loss). 

 

6.2.1 Revenue and expenses  

Revenue is the income generated by the operations of a business for a period.  

Expenses are the costs of running the business for the same period.  

The IASB's Conceptual Framework for Financial Reporting 2018 defines income, and expenses as 

follows: 

'

Income

 is increases in assets or decreases in liabilities that result in increases in equity, other than 

those relating to contributions from holders of equity claims.' 

(Conceptual Framework for Financial Reporting 2018, para. 4.68) 

'

Expenses

 are decreases in assets or increases in liabilities that result in decreases in equity, other than 

those relating to distributions to holders of equity claims.' 

(Conceptual Framework for Financial Reporting 2018, para. 4.69) 

 

6.2.2 Form of the statement of profit or loss  

The period chosen will depend on the purpose for which the statement is produced. The statement of 

profit or loss which forms part of the published annual financial statements of a limited liability 

company will usually be for the period of a year, commencing from the date of the previous year's 

statements. On the other hand, management might want to keep a closer eye on a company's 

profitability by making up quarterly or monthly statements. 

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