Preparation of accounts for a sole trader

Question 1

What two elements are the statement of profit/loss split into?

Answer 1

1. trading account - gross profit
2. statement of profit/loss = net profit

Question 2

What does the statement of profit/loss show?

Answer 2

performance - specific period of time

Question 3

Why would a trading account only calculate gross proit?

Answer 3

1. Primary purpose
2. Direct profit - sales of goods

Question 4

What is the trading account?

Answer 4

gross profit loss = buying/ selling of goods

Question 5

What does the remaining content in the statement of profit/loss include?

Answer 5

sundry income
expenses

Question 6

What happens with the remaining content of profit/loss after the trading accounts?

Answer 6

deducted from gross
= net profit

Question 7

How is the statement of profit or loss prepared?

Answer 7

entries - ETB
profit/loss columns

Question 8

How would the profit/loss be laid out ?

Answer 8

Sales revenue = (Sales - sales returns)

Costs of goods sold = ( Opening inventory + purchases - closing inventory)

Sales revenue - Costs of goods sold = Gross profit

Question 9

What is the statement of financial position?

Answer 9

1. list of assets and liabilities
2. end of the accounting period

Question 10

What are non current assets?

Answer 10

use = greter than 1 year

Question 11

What are current assets?

Answer 11

1. normal course of trading
2. less than 1 year

Question 12

What are liabilities split into?

Answer 12

1. current liabilities
2. non current liabilities

Question 13

What are current liabilities ?

Answer 13

1. short term payables
2. within 12 months - sofp date

Question 14

What are non-current liabilities?

Answer 14

1. longer period of time
2. excess of one year

Question 15

What order are the assets and liabilities in a formal statement of financial position listed?

Answer 15

1. non current assets
2. current assets
3. current liabilities
4. long term payables

Question 16

How is the statement of financial positin total calculated?

Answer 16

all assets ( added together) - all liabilities ( added together)

Question 17

What should be equal to all assets - all liabilities

Answer 17

total assets less liabilities = capital of sole trader

Question 18

How does capital appear in the statement of financial position?

Answer 18

opening capital start of the year + capital during the year + net profits/loss for the year - drawings = closing capital

Question 19

What should the closing capital equal ?

Answer 19

1. all assets less all liabilities
2. assets -liabilities = capital

Question 20

What would the capital balance represent

Answer 20

1. Owner’s propretor’s finds
2. business wound up + all assets sold + liabilities paid off

Question 21

How would the non-current assets be shown in SOFP?

Answer 21

Carrying amounts

Question 22

What must be done with current assets and current liabilities in the sofp?

Answer 22

• current assets sub totaled
• current liabilities sub totaled
• current assets - current liabilities = net current assets

Question 23

How is the statement of financial position total ( net assets) reached?

Answer 23

net current assets + non current assets (carrying amount)

Question 24

What should the statement of financial position total net assets be equal to ?

Answer 24

closing capital

Question 25

What if the statement of financial position does not balance ?

Answer 25

• arithmetic error
• omissions

Question 26

What are carriage inwards and carriage outwards?

Answer 26

Expenses of the business

Question 27

What should carriage inwards be treated as ?

Answer 27

part of costs of goods sold

Question 28

What shuld carriage outwards be teated as ?

Answer 28

one of the list of expenses