Preparation of financial statements: Sole traders 2020

Income Statement of a sole trader Layout

$ $

Revenue xx

Returns inwards (xx)

xx

Inventory at 1 January 2020 xx

Purchases xx

Carriage Inwards xx

xx

Returns outwards (xx)

xx

Inventory at 31 December 2020 (xx)

Cost of sales (xx)

Gross profit xx

Other incomes:

Rent receivable xx

Profit on disposal xx

Discount received xx

Commission receivable xx

Decrease in provision for doubtful debts xx

xx

Less Expenses:

Wages and salaries xx

Motor vehicle expenses xx

1
Preparation of financial statements: Sole traders 2020

Insurance xx

Loss on disposal xx

Advertising xx

Bank interest xx

Motor repairs xx

Building maintenance xx

Electricity and water xx

Commission payable xx

Carriage outwards xx

Interest on loan xx

Rent and rates xx

Discount allowed xx

Heat and light xx

Irrecoverable debts xx

Increase in provision for doubtful debts xx

Marketing expenses xx

General expenses xx

Provisions for depreciation xx

Land and buildings/Premises xx

Office equipment xx

Motor vehicles xx

Fixtures and fittings xx

(xx)

Profit for the year xx

2
Preparation of financial statements: Sole traders 2020

Notes
-Opening inventory is taken from the Trial balance/List of balances.
-Closing inventory is taken from additional information.
-If the owner took goods for personal/private use, subtract the amount taken before subtracting
closing inventory and add it to drawings in the statement of financial position as additional
drawings.
-Prepaid is subtracted from an expense/income.
-Due/owing/outstanding/Accrued is added to the expense/income.
-Rent and commission having credit balances or being credited are recorded under gross profit
as other incomes
-If no entry had been made in the books, make the double entry.

Calculation of Increase/ Decrease in provision for doubtful debts

%
Step1 x (Trade Receivables-irrecoverable debts in the additional information)=$xx
100

Step 2 $xx- Provision for doubtful debts= Increase in provision for doubtful debts
If the answer is negative= Decrease in provision for doubtful debts

Calculation of Depreciation per annum on cost/ using straight-line method

%
x At cost of that asset in the trial balance
100

Calculation of Depreciation using reducing balance method

%
x (At cost of the asset in the trial balance-Provision for depreciation of the asset in
100
the Trial Balance)

Calculation of Depreciation using revaluation method

Cost of the asset at the start of the year xxx
Add Cost of the asset bought during the year xxx
xxx
Less Cost of the asset sold during the year (xxx)
xxx
Annual Depreciation (Valuation amount-xxx) xxx
Valuation of the assets at the end of the year xxx

3
Preparation of financial statements: Sole traders 2020

Statement of Financial Position of a Sole trader Layout

$ $ $
Non-current assets Cost Accumulated Book
Depreciation value

Land and building/Premises xxx xx xx

Motor vehicles xxx xx xx

Fixtures and fittings xx xx xx

Office equipment xxx xx xx

xxx xx xx

Current assets

Inventory xx

Trade receivables xx

Less provision for doubtful debts (xx)

xx

Other receivables xx

Bank xx

Cash xx

xx

Total assets xx

Capital:

Capital at 1 January 2020 xx

Plus Profit for the year xx

xx

Drawings (xx)

xx

4
Preparation of financial statements: Sole traders 2020

Non-current Liabilities

6% loan xx

Current liabilities

Trade payables xx

Bank overdraft xx

Other payables xx

xx

Total capital and Liabilities xx

Notes

-Accumulated depreciation amounts are calculated as depreciation recorded in the income

statement plus provision for depreciation given in the trial balance/list of balances. Do this
for each non-current asset.

-Inventory amount is taken from additional information. It is the closing inventory.

-Subtract irrecoverable debts before recording Trade receivables.

-Provision for doubtful debts is the provision for doubtful debts you calculated before
subtracting provision at the beginning of the year.
%
x (Trade Receivables-irrecoverable debts in the additional information)=$xx
100

-Other receivables amount is the total amount of all prepaid expenses and all due/owing/
outstanding incomes given in the additional information.

-Cash and cash equivalents amount is the combined amounts for bank and cash.

-Bank overdraft is the bank with a credit balance.

-Other payables figure is the total amount of all owed/outstanding/due expenses and prepaid
incomes given in the additional information.