Preparing Financial Statement for Sole Trader

Question 1

Whats the double entry for Proprietor withdrawing cash?

Answer 1

Dr Drawings
Cr Cash

Question 2

What is the double entry for the proprietor taking goods from their business?

Answer 2

Dr Drawings
Cr Purchases

Drawings of goods are recorded at the cost to the business not at their sales value

Question 3

How does goods drawn affect COGS calculation

Answer 3

Opening inventory + Purchases - Goods drawn (cost price) - Closing inventory

Question 4

How is Discounts Received and Discounts Allowed recorded in the SPL?

Answer 4

Discounts Received - Other Income
Discounts Allowed - Other expenses

Question 5

What is the order of the SPL?

Answer 5

Sales Revenue

COGS
Gross Profit

Other Income

Other expenses

Profit

Question 6

Where is Carriage outwards placed on the P&L?

Answer 6

Other expenses

Question 7

How is the SFP structured?

Answer 7

NCA’s

Current Assets

Current Liabilities

Net current assets - CA-CL

Non current Liabilities

Net assets - Non Current Assets + Net Current Assets - NCL = Net assets

Financed By:
Opening Capital
+ P&L
- Drawings

Closing Capital

Question 8

Where does a credit balance on accrurals go from TB?

Answer 8

Credit SFP Liabilites

Question 9

Where does disposal of non current assets go from TB?

Answer 9

Credit SPL Income

Question 10

Where does a debit balance on prepayements go from TB?

Answer 10

Debit SFP Asset

Question 11

Where does Loan Interest go from TB?

Answer 11

Debit SPL Expense

Question 12

Where does Allowence for DD Adjustment go?

Answer 12

SPL Expense

Question 13

If there is a doubtful Receivables on the TB what do you have to do?

Answer 13

Minus off Receivables total to net it off

Question 14

Where does Irrecoverable Debt go from TB?

Answer 14

SPL Expenses

Question 15

What 4 factors make up the finance by section at the end of the SFP?

Answer 15

Opening Capital
Profit/Loss
Drawings
Closing Capital (should be same value as Net Assets)

Question 16

When preparing the fnancial statements if given two figures for allowence for doubtful receivables and allowence for doubtful receivables adjustment, how do yo treat these figures?

Answer 16

Allowence for doubtful recievables you net off the total recievables figure
Allowence for doubtful receivables adjustment you add on the P&L as other income

Question 17

If a sole trader takes from his business £800 worth of goods for personal use, what is the double entry?

Answer 17

Debit - drawings
Credit - Purchases

Question 18

If the doubtful debt adjustment is a debit how does this chnage the P&L

Answer 18

Doubtful debt adjustment is an expense, usually it will show as a credit which means you’ll need to reduce the expense so therefore add it into income

However if the adjustment is a debit than this will increase the expense and therefore will be added into other expenses section on the P&L

Question 19

Where does Closing invenotry feature when preparing the SPF and P&L?

Answer 19

P&L opening inventory will feature in COGS
SFP Closing inventory will feature in the current assets section

Question 20

What does Net Assets equal to?

Answer 20

Closing Capital, useful for opening and closing balances on capital T account questions.

Question 21

is drawings included in COGS?

Answer 21

No

Question 22

Example of other income?

Answer 22

Doubtful Receivables adjustment (if its a credit)
Bank interest
Discounts received