Sole Traders (Copy)
Topic 5.1: Sole Traders – Quiz
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. Which of the following is a key advantage of being a sole trader?
A. Limited liability
B. Shared responsibility
C. Full control over decisions
D. Ability to issue shares
2. What is the main disadvantage of a sole trader business?
A. No control over operations
B. Profits are shared
C. Unlimited liability
D. Complicated legal structure
3. Why is it important for sole traders to prepare financial statements?
A. To apply for jobs
B. To reduce production
C. To assess profitability and financial position
D. To pay employees
4. What is the purpose of an income statement?
A. To list all assets
B. To show business profit or loss over a period
C. To identify owner drawings
D. To track cash flows
5. Which of the following would appear in a statement of financial position?
A. Rent received
B. Sales revenue
C. Cash at bank
D. Interest expense
6. A trading business earns revenue by:
A. Selling services
B. Renting property
C. Selling goods
D. Providing loans
7. A service business earns revenue through:
A. Sale of stock
B. Sale of fixed assets
C. Providing services
D. Sale of shares
8. What is the accounting equation?
A. Assets + Liabilities = Capital
B. Capital = Liabilities – Assets
C. Assets = Liabilities + Capital
D. Revenue – Expenses = Profit
9. Which of the following is a non-current asset?
A. Inventory
B. Trade receivables
C. Machinery
D. Cash
10. Which of the following is a current liability?
A. Bank loan repayable in 5 years
B. Capital introduced
C. Trade payables
D. Fixtures and fittings
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. What is the effect of depreciation in financial statements?
A. Increases non-current assets
B. Increases profit
C. Reduces non-current asset value and profit
D. Reduces liabilities
12. Accrued expenses are:
A. Prepaid expenses
B. Amounts owed but not yet paid
C. Cash received in advance
D. Payments made in advance
13. What does provision for doubtful debts do?
A. Increases assets
B. Decreases liabilities
C. Reduces trade receivables
D. Increases sales
14. In which section of the statement of financial position is inventory recorded?
A. Non-current assets
B. Capital
C. Current liabilities
D. Current assets
15. Which of these would appear in the capital section of a sole trader’s statement of financial position?
A. Trade receivables
B. Equipment
C. Profit for the year
D. Accrued expenses
16. A prepaid expense is shown as:
A. Non-current liability
B. Capital
C. Current asset
D. Expense in income statement
17. An accrued income is recorded as:
A. Current liability
B. Current asset
C. Non-current liability
D. Non-current asset
18. Which of the following is a feature of a trading account?
A. Calculates net profit
B. Records cash flows
C. Calculates gross profit
D. Lists drawings
19. Owner’s drawings are recorded as:
A. Expense in income statement
B. Liability in balance sheet
C. Deduction from capital
D. Addition to capital
20. Which of the following reduces net profit?
A. Capital introduced
B. Income received
C. Irrecoverable debts
D. Prepaid income
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
21. What is the formula to calculate net profit?
A. Revenue – Cost of Sales
B. Gross Profit – Expenses
C. Revenue + Expenses
D. Gross Profit + Drawings
22. Which adjustment is required for goods taken by owner for personal use?
A. Increase capital
B. Decrease purchases
C. Increase sales
D. Decrease cash
23. The matching principle ensures:
A. All assets are revalued
B. Income is matched with related expenses
C. Revenue is recorded when cash is received
D. Profits are maximised
24. Which of the following is an intangible asset?
A. Inventory
B. Goodwill
C. Motor vehicle
D. Trade receivable
25. A sole trader’s capital is calculated as:
A. Total assets – total liabilities
B. Income – expenses
C. Assets + liabilities
D. Drawings – net profit
26. Which of the following affects both the income statement and statement of financial position?
A. Prepaid expense
B. Drawings
C. Sales
D. Accrued income
27. When depreciation is recorded:
A. Asset value increases
B. Expense decreases
C. Profit decreases
D. Liabilities increase
28. Which of the following is not an adjustment in final accounts?
A. Depreciation
B. Accruals
C. Provision for doubtful debts
D. Cash purchases
29. Statement of financial position is prepared:
A. To record all incomes
B. For a particular period
C. On a specific date
D. Every week
30. The final figure in the statement of financial position is:
A. Gross profit
B. Net profit
C. Capital
D. Net assets
Answer key and explanations
Topic 5.1 – Sole Traders
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. Correct Answer: C
Explanation: Sole traders have full control over decisions and management of the business.
2. Correct Answer: C
Explanation: Sole traders are personally liable for all debts — known as unlimited liability.
3. Correct Answer: C
Explanation: Financial statements help monitor business performance and support decision-making.
4. Correct Answer: B
Explanation: Income statements (profit and loss accounts) show profit or loss over a specific period.
5. Correct Answer: C
Explanation: Cash at bank is a current asset and appears in the statement of financial position.
6. Correct Answer: C
Explanation: Trading businesses buy and sell physical goods for profit.
7. Correct Answer: C
Explanation: Service businesses provide intangible services rather than physical products.
8. Correct Answer: C
Explanation: Accounting equation: Assets = Liabilities + Capital.
9. Correct Answer: C
Explanation: Machinery is a non-current asset because it provides long-term benefits.
10. Correct Answer: C
Explanation: Trade payables (creditors) are current liabilities.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Correct Answer: C
Explanation: Depreciation reduces both profit and non-current asset value.
12. Correct Answer: B
Explanation: Accrued expenses are liabilities — they are owed but unpaid.
13. Correct Answer: C
Explanation: Provision for doubtful debts anticipates possible bad debts and reduces receivables.
14. Correct Answer: D
Explanation: Inventory is a current asset as it is expected to be sold within a year.
15. Correct Answer: C
Explanation: Profit for the year is added to capital in the balance sheet.
16. Correct Answer: C
Explanation: Prepaid expenses are future benefits, hence treated as current assets.
17. Correct Answer: B
Explanation: Accrued income is income earned but not yet received — a current asset.
18. Correct Answer: C
Explanation: The trading account determines gross profit (Sales – Cost of Goods Sold).
19. Correct Answer: C
Explanation: Drawings reduce the owner’s capital in the balance sheet.
20. Correct Answer: C
Explanation: Irrecoverable debts are losses and reduce net profit.
21. Correct Answer: B
Explanation: Net profit = Gross Profit – Expenses.
22. Correct Answer: B
Explanation: When the owner takes goods for personal use, it reduces purchases.
23. Correct Answer: B
Explanation: Matching principle means expenses are matched to revenues of the same period.
24. Correct Answer: B
Explanation: Goodwill is an intangible asset — it cannot be touched but has value.
25. Correct Answer: A
Explanation: Capital = Assets – Liabilities (also derived from the accounting equation).
26. Correct Answer: A
Explanation: Prepaid expenses reduce income statement expenses and appear as current assets in the balance sheet.
27. Correct Answer: C
Explanation: Depreciation reduces profit and the carrying value of the asset.
28. Correct Answer: D
Explanation: Cash purchases are not adjustments — they are regular transactions.
29. Correct Answer: C
Explanation: Statement of financial position is prepared on a specific date to show assets, liabilities, and capital.
30. Correct Answer: C
Explanation: The final balancing figure in the statement of financial position is the closing capital.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course