Financial statements of sole

traders
Question : Fatima
Why do sole traders prepare income statements?

 To know whether they have made a profit or loss during

the accounting period
 To check the performance of the business
Learning intentions
 prepare income statements for trading businesses
 understand that statements of financial position record
assets and liabilities on a specified date
 understand the inter-relationship of items in a
statement of financial position
Success criteria
 prepare income statements for trading businesses
 do the adjustments for prepayments and accruals
 draw up statement of financial position
 Prepare capital account for a sole trader
Success criteria
Trading Account
Adjustments
 2 Fatima took goods for her own use from the
business during the year ended 31 March 2022. These
goods cost $1300.
 Less from purchases $1300
 Add to cash drawings in the Statement of Financial
Position
Adjustments
 3 Depreciation on fixtures and equipment is to be
charged at 20% per annum using the reducing
balance method.
 (80 000 – 39 040) x 20/100
 = $8192
 Depreciation of Fixtures and equipment: $8192
Adjustments

 4 Accrued wages at 31 March 2022 were $800.

 Add $800 to wages

Adjustments
 5 Rent includes a payment of $1500 for the 3
months from 1 March 2022 to 31 May 2022.

1 April 2021 1 March 2022 31 March 2022 April 31 May 2022

Prepaid = 1500/3 x 2 = $1000

Less $1000 from rent
Adjustments
 6 An irrecoverable trade receivable of $200 is to be
written off.

 Include $200 as an expense “Irrecoverable debts”

Adjustments

 7 The provision for doubtful debts is to be set at

3% of trade receivables.
 Opening balance = $156
 Closing balance = (6400 – 200) x 3/100 = $186
 Increase in provision for doubtful debts = (186 – 156)
 = $30 as an expense
Capital

 What affects capital?

 Introduction of additional money as capital
 Drawings (both cash and goods)
 Profit
 Loss
Capital

 What affects capital?

 Introduction of additional money as capital
 Drawings (both cash and goods)
 Profit
 Loss
 Capital Account

Drawings xxxx Balance b/d xxxx

Loss for the year xxxx Cash xxxx

Balance c/d xxxx Profit for the year xxxx

xxxx xxxx

Balance b/d xxxx

Capital
 What affects capital?
 Introduction of additional money as capital
 Drawings (both cash and goods)
 Profit
 Loss