Financial Statements of a Sole Trader

Question 1

What is the ‘Cost of Sales’

Answer 1

It is the cost of stock that the business has sold to customers.

For a retailer, it is the amount paid for the goods that have been sold during the year.

For a manufacturer, it is the cost of making the products it sold during the year .

Question 2

What must happen for Cost of sales = purchases

Answer 2

All good purchased during the accounting period must be sold.

Question 3

What happens if some of the good purchased remain unsold at the end of the accounting period?

Answer 3

The stock left over becomes the Closing stock. This will end up being the opening stock of the next accounting period.

Question 4

Cost of sales equation

Answer 4

Cost of sales = Opening stock + purchases - closing stock

Question 5

Net profit equation

Answer 5

Sales - Cost of Sales = Gross profit

Gross profit - Expenses = Net Profit

Question 6

What is Mark-up/Margin?

Answer 6

It is important to know how much profit a business is making on items sold. A gross profit percentage is calculated and is expressed as either a Mark-up or a Margin.

Question 7

Mark-up/Margin equations

Answer 7

Mark-up: Cost / cost of sales

Margin: Selling price / sales