1. GCSE Business Studies Unit 2 Developing a Business
Financial Statements

2. Learning Outcomes Students should be able to:
complete simple financial statements for a sole trader
explain and interpret an income statement and a statement of financial position, show and explain their importance to a business
prepare an income statement that includes:
sales revenue
cost of sales
expenses
gross and net profit and loss
prepare a statement of financial position that includes:
current and non-current assets
equity
current and non-current liabilities
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Financial Statements
There are two main financial statements used in business, these are prepared on an annual basis. They are:
Income Statement
Statement of Financial Position
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Income Statement
Calculates Gross Profit: Sales Revenue – Cost of Goods Sold = Gross Profit/Loss Calculates Net Profit: Gross Profit – Expenses = Net Profit/Loss
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5. Income Statement for Year ending December 2018
Sales Revenue
278,000
Less Cost of Sales
Opening Inventory
36,000
Add Purchases
108,000
144,000
Less Closing Inventory
33,000
Cost of Goods Sold
111,000
Gross Profit
167,000
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6. Income Statement for Year ending December 2018
Gross Profit
167,000
Less Expenses
Wages
33,000
Heat and Light
5,000
Administration
2,000
Loan Interest
42,000
Net Profit
125,000
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7. Statement of Financial Position
The statement of financial position is a snapshot showing what a business:
Owns (what it did with the money invested)
Owes (where it got the money from)
If a statement of financial position is correct then
Total Assets = Total Equity & Liabilities
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8. Statement of Financial Position Main sections:
Assets - are owned by the business, classified as:
non current
current
Equity - is owed by the business to the owner, includes:
capital
net profit
drawings
Liabilities - are owed by the business, classified as:
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Assets
Non Current Assets
The long term assets owned by the business needed for the day-to-day running.  
Examples include:
Land & Buildings/Premises
Machinery
Fixtures and Fittings
Equipment
Vehicles
Current Assets
The short term assets owned by the business, these will change within one year:
Closing Inventories
Trade Receivables
Bank
Cash
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Equity
Capital
money invested in business by the owner
raised from personal savings, family and friends or another source of finance
Net profit
money made by the business through trading
this money belongs to the owner, so is owed to them
Drawings
money taken out of the business by the owner for their personal use
this will provide the sole trader with an income
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Liabilities
Non Current Liabilities
Items that a business owes, that are not due for repayment within one year
Examples include:
Bank loan
Mortgage
Current liabilities
The short-term borrowings that will be paid back within a year:
Overdraft
Trade Payables
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12. Statement of Financial Position as at December 2018
Non Current Assets
Premises
100,000
Machinery
34,000
Vehicles
16,000
150,000
Current Assets
Inventory
33,000
Trade Receivables
12,000
Bank
6,000
Total Assets
201,000
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13. Statement of Financial Position as at December 2018
Equity
100,000
Add Net Profit
125,000
225,000
Less Drawings
60,000
Total Equity
165,000
Non Current Liabilities
Loan
20,000
Current Liabilities
Trade Payables
16,000
Total Equity and Liabilities
201,000
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14. Interpreting Financial Statement Key Points
Sales revenue decreased/increased?
Gross profit fallen/risen?
Net profit fallen/risen?
Value of non current assets increased/decreased?
Value of current assets increased/decreased? What has happened to inventory, trade receivables and the cash position?
Current liabilities increased/decreased? What has happened to trade payables or overdraft?
Suggest factors that may have caused the above things to happen.
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Pupil Activity
Working individually you have thirty minutes to answer the following past paper questions:
2013 Question 3d
2015 Question 3ci & ii
2016 Question 3e
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16. Learning Check Can you:
complete simple financial statements for a sole trader
prepare an income statement that includes:
sales revenue
cost of sales
expenses
gross and net profit and loss
prepare a statement of financial position that includes:
current and non-current assets
equity
current and non-current liabilities
explain and interpret an income statement and a statement of financial position, show and explain their importance to a business
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