Preparation of accounts for a sole trader Flashcards
What two elements are the statement of profit/loss split into?
- trading account - gross profit
- statement of profit/loss = net profit
What does the statement of profit/loss show?
performance - specific period of time
Why would a trading account only calculate gross proit?
- Primary purpose
- Direct profit - sales of goods
What is the trading account?
gross profit loss = buying/ selling of goods
What does the remaining content in the statement of profit/loss include?
sundry income
expenses
What happens with the remaining content of profit/loss after the trading accounts?
deducted from gross
= net profit
How is the statement of profit or loss prepared?
entries - ETB
profit/loss columns
How would the profit/loss be laid out ?
Sales revenue = (Sales - sales returns)
Costs of goods sold = ( Opening inventory + purchases - closing inventory)
Sales revenue - Costs of goods sold = Gross profit
What is the statement of financial position?
- list of assets and liabilities
- end of the accounting period
What are non current assets?
use = greter than 1 year
What are current assets?
- normal course of trading
- less than 1 year
What are liabilities split into?
- current liabilities
- non current liabilities
What are current liabilities ?
- short term payables
- within 12 months - sofp date
What are non-current liabilities?
- longer period of time
- excess of one year
What order are the assets and liabilities in a formal statement of financial position listed?
- non current assets
- current assets
- current liabilities
- long term payables
How is the statement of financial positin total calculated?
all assets ( added together) - all liabilities ( added together)
What should be equal to all assets - all liabilities
total assets less liabilities = capital of sole trader
How does capital appear in the statement of financial position?
opening capital start of the year + capital during the year + net profits/loss for the year - drawings = closing capital
What should the closing capital equal ?
- all assets less all liabilities
- assets -liabilities = capital
What would the capital balance represent
- Owner’s propretor’s finds
- business wound up + all assets sold + liabilities paid off
How would the non-current assets be shown in SOFP?
Carrying amounts
What must be done with current assets and current liabilities in the sofp?
- current assets sub totaled
- current liabilities sub totaled
- current assets - current liabilities = net current assets
How is the statement of financial position total ( net assets) reached?
net current assets + non current assets (carrying amount)
What should the statement of financial position total net assets be equal to ?
closing capital
What if the statement of financial position does not balance ?
- arithmetic error
- omissions
What are carriage inwards and carriage outwards?
Expenses of the business
What should carriage inwards be treated as ?
part of costs of goods sold
What shuld carriage outwards be teated as ?
one of the list of expenses
