Chapter 14

Financial Statement of Sole Trader

Theory
• Income Statement
( Statement of Profit or Loss ) ( Statement of Financial Performance )
An income statement is a statement prepared for a trading period to show
the gross profit and profit for the year.
• Gross Profit
This is the excess of revenue over the cost of sales in the period. That is
calculated in the trading section of the income statement.
• Profit for the year
The profit what remains of the gross profit after all other expenses have
been deducted.
• Statement of Financial Position
( Balance Sheet ) ( Statement of Affairs )
A statement of financial position shows the assets and liabilities of the
business at a certain date. The statement of financial position is not part of
the double entry system.
• Non-Current Asset
An asset that is owned and used by the business for more than one year.
( eg: Building, Fixture and Fitting & Motor Van )
• Current Asset
An asset that is owned by the business that can be converted to cash
through liquidation, use, or sales within one year. ( eg: Inventory, Trade
receivables, Cash at bank & Cash in hand )
• Non-Current Liabilities
Also known as long-term liabilities, refers to the financial obligations in
a company’s balance sheet that are not expected to be paid within one year. (
eg: Bank Loan )
• Current Liabilities
Short-term obligations that are expected to be paid within one year. ( eg:
account payables )

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• Cost of Sales
The cost of the items used for resales.
( Opening Stock+ Net Purchases – Closing Stock )
• Capital
Money invested in the business by the owner or owners.
• Trading Business
The types of business which buys and sells goods.
• Service Business
The types of business which does not buy and sell goods and provides
service such as an accountant, an insurance company, travel agent, a
hairdressers and so on.

Exam Practices

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