Sole Trader

FINAL ACCOUNTS – THE

INCOME STATEMENT
Why do sole traders do business?

• If your answer was to make Profits

Yes, you’re right on

the money
How would the sole trader know if
they are making profits?

• The Income Statement – an account which

calculates the gross profit after trading and
the net profit after all other expenses
involved in trade are considered.
How to calculate profit?

Sales – cost of
Basic formula what was sold
= profits
For example

SOLD A BAG OF LESS COST OF = PROFIT OF $15

MANGOES FOR $20 MANGOES $5
In accounting terms this be represented as follows:

Less cost of
Net Sales sales / cost of = gross profit
goods sold
Now lets consider the other expenses involved in
selling mangoes

THE FOOD BADGE RENT FOR MY FRUIT CARE OF MANGO THE BAG TO PUT THE TOTAL COST $12.00
TO SELL FOOD STAND ($2 TO TREE ($5 FOR WATER MANGOES IN ($0.50)
ITEMS($4.50) MUMMY) & PLANT FOOD)
Re-exam the account format with these new
considerations

Less cost of = Gross profit

Net sales $20
goods sold $5 $15

Less expenses
=Net profit $3
$12
Lets look ahead to the next month - How would the profit be calculated when
we consider other things?

• Left over stock from last month / opening stock

• Purchases of new stock
• Carriage inwards /transportation costs
= goods available for sale
Less Left over stock after sales / closing stock
=Cost of goods sold
 Name of Business
   
Income Statement for the year ended xxxx
   

  $ $  

  Net Sales   100  

  Less cost of goods sold:      

  opening stock 10   

  purchases 50   

  carriage inwards 10   

  goods available for sale 70   

  less closing stock 2   

    68  

Basic Income  

 
Gross profit
less expenses:
 
   
32  
 

Statement format  

 
rent
misc items
2 
5 
 

    7 
  Net profit   25  
           
   Name of Business  

  Income Statement for the year ended xxxx  

  $ $ $  
  Net Sales:      
  sales 1000   
  less sales returns 150   
  Net Sales   850 
  Less cost of goods sold:      
  opening stock 10   
  purchases 250     
  carriage inwards 10     
  260     
  puchases returns 20     

More Detailed  
 
 
Net Purchases
Goods available for sale
less closing stock
240 
250 
2 
 
 
 

Income Statement  
 
 
Gross profit
less expenses:
 
 
   
248 
602 
 
  rent 2   
  misc items 5   
    7 
  Net profit   595 
           
• Net Sales = sales – return
inwards
• Gross Profit = Net Sales – Cost
of goods sold
• Cost of goods sold = Goods
available for sale – closing stock
• Goods available for sale =
Important formulae
opening stock + Net Purchases to remember:
• Net Purchases = Purchases +
carriage inwards – return
outwards
• Net Profit = Gross profit -
expenses