FINAL ACCOUNTS

TOPIC: FINAL ACCOUNTS FOR SOLE

TRADER
 Lesson Objectives:

1. Advantages and Disadvantages of Sole Trader.

2. Importance of preparing Income Statement and

Statement of Financial Position.

3. Difference between trading business and service

business.

4. Preparation of Income Statement of a Trading business.

ADVANTAGES AND DISADVANTAGES OF A SOLE
TRADER

 Advantages:

 Disadvantages:
IMPORTANCE OF PREPARING INCOME
STATEMENT
 Income Statement is also known as Statement of
Financial Performance.
 It is prepared to calculate profit and loss.

 In Income Statement we record all Incomes and

Expenses incurred by the business during the year.
 It has two portions:

1. Trading Portion

2. Profit and Loss Portion

TRADING PORTION OF INCOME
STATEMENT:
 In trading portion of Income Statement we have to
calculate Gross Profit/Trading profit.

 Gross Profit = Revenues (Sales) – Cost of Sales

 Revenues = Revenues (Sales) – Return Inwards

 Cost of Sales = Opening Inventory + Purchases – Return

Outwards – Drawings of goods + Carriage Inwards –
Closing Inventory
PROFIT & LOSS PORTION:
 In profit and loss portion we have to calculate Profit or
Loss for the year.

 Profit/(Loss) for the year = Gross profit + Other Incomes

– Operating Expenses
TASK 1
 Following balances are available Mr. John’s business:

$
Revenues 200,000

Purchases 145,000
Return inwards 5,000
Carriage inwards 2,500
Opening Inventory 15,000
Return outwards 1,000
Closing Inventory 22,000

 Calculate Gross Profit for Mr. John’s business.

DIFFERENCE BETWEEN TRADING AND
SERVICE BUSINESS
 Trading Business

Involves in Buying and Selling of goods

 Service Business

Involves in providing services

There is no Trading portion in the Income
Statement of Service Business.
INCOME STATEMENT OF SERVICE
BUSINESS

 Profit for the year = Revenues (Fee) + Other Income -

Expenses
STATEMENT OF FINANCIAL POSITION
 It is also known as Balance Sheet

 In SOFP we record all Assets, Liabilities , Drawings and

Equity.

 We have to follow Accounting Equation, i.e.

Assets = Equity + Liabilities
FORMAT OF INCOME STATEMENT OF A
TRADING BUSINESS
FORMAT OF INCOME STATEMENT OF A
SERVICE BUSINESS
FORMAT OF STATEMENT OF FINANCIAL
POSITION: