Sole trader financial statements: income statement, statement of financial position, working capital, capital calculation

1. Opening inventory was $14 000. Purchases were $86 000. Purchases returns were $3000. Carriage inwards was $1200. Closing inventory cost was $17 500 but its net realisable value was $16 800. Sales were $128 000 and sales returns were $4500. What was gross profit?

A $40 900
B $42 100
C $42 800
D $43 500

2. Gross profit was $52 400. Discount received was $1100. Allowance for doubtful debts decreased by $200. Rent paid was $12 000, including $2000 for next year, and rent accrued at the year-end was $800. Wages paid were $18 500, wages accrued at the start were $1200 and at the end $1600. Insurance paid was $4800, prepaid at the start $400 and prepaid at the end $700. Depreciation was $5000 and irrecoverable debts were $600. What was net profit?

A $12 700
B $13 500
C $13 900
D $15 100

3. At the year-end, a sole trader had non-current assets $85 000, inventory $13 000, trade receivables $16 000 and bank $2000. Liabilities were bank loan $20 000, trade payables $9000 and accrued expenses $1000. During the year, the owner introduced capital of $7000, made cash drawings of $5000, withdrew goods costing $2000 and earned profit of $14 000. What was opening capital?

A $65 000
B $72 000
C $79 000
D $86 000

4. A statement of financial position showed inventory $26 000, trade receivables $18 000, allowance for doubtful debts $1200, prepaid insurance $600, bank balance $4000, trade payables $15 000, accrued wages $900, income received in advance $1400 and a bank loan repayable after three years $20 000. What was working capital?

A $10 100
B $27 600
C $30 100
D $50 100

5. Sales were $160 000 and sales returns were $6000. Opening inventory was $22 000, purchases $115 000, purchases returns $4000, carriage inwards $3500 and closing inventory $28 000. Expenses were selling expenses $16 200, administration expenses $18 400, depreciation $6200 and discount allowed $900. Discount received was $1300. What was net profit?

A $5100
B $6100
C $43 800
D $45 500

6. Opening capital was $60 000. During the year the owner introduced $8000 cash, withdrew $14 000 cash and took goods costing $2000 for personal use. The business made a loss of $5000. What was closing capital?

A $47 000
B $49 000
C $57 000
D $65 000

7. The owner paid business repairs of $900 using private funds. No entry had been made. What is the correct effect of the adjustment?

A Expenses increase and capital increases
B Expenses increase and drawings increase
C Assets decrease and expenses increase
D Capital decreases and liabilities increase

8. The business paid the owner’s personal insurance bill of $1200 and recorded it as business insurance expense. What correction is needed?

A Debit drawings $1200, credit insurance $1200
B Debit insurance $1200, credit drawings $1200
C Debit capital $1200, credit insurance $1200
D Debit drawings $1200, credit bank $1200

9. Which item is included in current liabilities in a sole trader’s statement of financial position?

A Prepaid rent
B Inventory
C Bank overdraft
D Motor vehicles at cost

10. A sole trader’s closing capital was $74 000. During the year, profit was $18 000, drawings were $11 000 and additional capital introduced was $5000. What was opening capital?

A $52 000
B $62 000
C $72 000
D $98 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A business has assets of $150 000 and liabilities of $42 000 at the end of the year. Opening capital was $93 000. During the year, the owner introduced $10 000 and withdrew $13 000. What was the profit for the year?

A $8000
B $15 000
C $18 000
D $28 000

12. Which item is deducted in the income statement before calculating gross profit?

A Discount allowed
B Carriage outwards
C Purchases returns
D General expenses

13. Which item is deducted after gross profit in the income statement?

A Closing inventory
B Purchases returns
C Carriage inwards
D Carriage outwards

14. The income statement shows gross profit $36 000. Expenses are rent $8000, wages $15 000, carriage outwards $1200, discount allowed $500 and depreciation $2400. Other income is discount received $700. What is net profit?

A $9600
B $10 600
C $11 000
D $12 000

15. A trader’s assets at the start of the year were $72 000 and liabilities were $18 000. At the end of the year assets were $95 000 and liabilities were $24 000. During the year, the owner introduced $5000 and withdrew $9000. What was profit?

A $13 000
B $17 000
C $21 000
D $25 000

16. A sole trader has non-current assets at cost $90 000 and accumulated depreciation $28 000. Current assets are inventory $18 000, trade receivables $12 000, bank $4000 and prepaid expenses $700. Current liabilities are trade payables $13 000, accrued expenses $1100 and bank overdraft $3000. What is capital?

A $51 600
B $79 600
C $90 600
D $107 600

17. Which statement about working capital is correct?

A It is current assets minus current liabilities.
B It is total assets minus total liabilities.
C It is capital plus drawings minus profit.
D It is non-current assets minus current assets.

18. A sole trader’s working capital increased from $12 000 to $19 000. Which transaction could have caused this?

A Buying inventory on credit
B Paying a trade payable by cheque
C Buying equipment by cheque
D Repaying a long-term loan by cheque

19. A trader’s closing inventory was overstated by $2500. What was the effect on the income statement and statement of financial position?

A Profit overstated and current assets overstated by $2500
B Profit understated and current assets understated by $2500
C Profit overstated and current liabilities understated by $2500
D Profit understated and capital overstated by $2500

20. Opening inventory was understated by $1800 and closing inventory was overstated by $1200. What was the effect on profit for the year?

A Profit overstated by $600
B Profit understated by $600
C Profit overstated by $3000
D Profit understated by $3000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. Sales were $84 000. Sales returns were $3600. Gross profit was 25% of net sales. What was cost of sales?

A $20 100
B $60 300
C $63 000
D $64 800

22. Cost of sales was $75 000 and gross profit margin was 40%. What were net sales?

A $105 000
B $120 000
C $125 000
D $187 500

23. A trader marks goods at 331/3% on cost. Net sales were $96 000. Opening inventory was $15 000 and net purchases were $69 000. What was closing inventory?

A $6000
B $9000
C $12 000
D $18 000

24. A business made a draft net profit of $18 400. Closing inventory had been understated by $900, accrued expenses of $500 had been omitted, and prepaid insurance of $300 had been treated as an accrued expense. What was corrected net profit?

A $18 500
B $19 100
C $19 400
D $19 800

25. At the year-end, trade receivables were $22 000. A debt of $2000 was to be written off and an allowance of 5% was required on the remaining receivables. What amount should appear as trade receivables in the statement of financial position?

A $19 000
B $20 000
C $20 900
D $21 000

26. A sole trader’s draft profit was $24 000. Depreciation of $3500 had been omitted. Goods costing $1200 withdrawn by the owner had been included in purchases and not adjusted. What was the corrected profit?

A $19 300
B $21 700
C $25 700
D $28 700

27. Goods costing $1500 were taken by the owner for private use but no adjustment was made. What is the effect before correction?

A Profit understated and drawings understated
B Profit overstated and drawings overstated
C Profit understated and drawings overstated
D Profit overstated and drawings understated

28. Which item appears in the capital section of a sole trader’s statement of financial position?

A Gross profit
B Net profit
C Sales revenue
D Purchases returns

29. A trader had opening capital $45 000. Net profit was $12 500. Drawings were $9000. Additional capital introduced was $4000. What was closing capital?

A $44 500
B $48 500
C $52 500
D $70 500

30. A statement of financial position showed non-current assets $76 000, current assets $31 000, current liabilities $18 000 and non-current liabilities $25 000. What was capital?

A $64 000
B $76 000
C $89 000
D $132 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A business has net profit $19 000 before the following adjustments: closing accrued income $800 omitted, income received in advance $600 omitted, accrued wages $900 omitted, and prepaid rent $400 omitted. What is corrected net profit?

A $18 700
B $19 100
C $19 300
D $20 900

32. Which item is shown as a current asset in the statement of financial position?

A Accrued wages
B Income received in advance
C Prepaid insurance
D Bank loan repayable in five years

33. Which item is shown as a current liability in the statement of financial position?

A Accrued income
B Prepaid rent
C Trade receivables
D Accrued expenses

34. A business has current assets of $42 000 and current liabilities of $19 500. The owner repays a trade payable of $4500 by cheque. What is the new working capital?

A $18 000
B $22 500
C $27 000
D $31 500

35. A business has current assets of $35 000 and current liabilities of $14 000. It buys inventory on credit for $6000. What is the new working capital?

A $15 000
B $21 000
C $27 000
D $35 000

36. A sole trader has net assets of $68 000 at the end of the year. Opening capital was $55 000, additional capital was $6000 and drawings were $9000. What was profit?

A $10 000
B $16 000
C $22 000
D $28 000

37. Which formula calculates cost of sales?

A Opening inventory + purchases + sales returns − closing inventory
B Opening inventory + net purchases + carriage inwards − closing inventory
C Sales − sales returns − purchases returns
D Closing inventory + purchases returns − opening inventory

38. Which item is included in net purchases?

A Sales returns
B Carriage outwards
C Purchases returns
D Discount allowed

39. Which item is not included in the calculation of gross profit?

A Sales returns
B Purchases returns
C Discount received
D Closing inventory

40. A trader’s opening capital was $80 000. At the end of the year, assets were $124 000 and liabilities were $31 000. The owner introduced $4000 and made drawings of $15 000. What was profit?

A $24 000
B $28 000
C $32 000
D $34 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A sole trader’s statement of financial position includes inventory $15 000, trade receivables $11 000, allowance for doubtful debts $700, bank overdraft $2400, trade payables $8500 and accrued expenses $600. What is working capital?

A $14 500
B $14 800
C $24 700
D $25 300

42. A trader has sales $90 000, sales returns $4000, purchases $58 000, purchases returns $2500, carriage inwards $800, opening inventory $12 000 and closing inventory $15 300. What is gross profit?

A $32 000
B $33 000
C $34 000
D $35 000

43. Gross profit was $42 000 and net profit was $13 500. Expenses were rent $12 000, wages $18 000, insurance $3000 and depreciation $2500. What was other income?

A $7000
B $4000
C $3000
D $1000

44. A business made a net loss of $6000. Opening capital was $40 000. Drawings were $7000 and additional capital was $5000. What was closing capital?

A $22 000
B $32 000
C $38 000
D $48 000

45. Which error would overstate both profit and capital?

A Closing inventory omitted
B Accrued expenses omitted
C Prepaid expenses omitted
D Sales omitted

46. Which error would understate both profit and current assets?

A Accrued income omitted
B Income received in advance omitted
C Accrued expenses omitted
D Trade payables omitted

47. Which item should be deducted from capital in a sole trader’s statement of financial position?

A Additional capital
B Net profit
C Drawings
D Non-current liabilities

48. A sole trader’s total assets are $118 000. Current liabilities are $16 000 and non-current liabilities are $34 000. Opening capital was $61 000. Additional capital was $12 000 and drawings were $19 000. What was net profit?

A $14 000
B $18 000
C $26 000
D $38 000

49. Which statement is correct about a sole trader’s financial statements?

A The income statement shows assets and liabilities at the year-end.
B The statement of financial position shows profit earned during the year only.
C The income statement calculates profit or loss, and the statement of financial position shows assets, liabilities and capital.
D Drawings are shown as an expense in the income statement.

50. A sole trader has non-current assets $60 000, inventory $12 000, trade receivables $9000, bank $3000, trade payables $7000 and a bank loan $20 000. Net profit was $11 000 and drawings were $5000. What was capital at the start of the year if no additional capital was introduced?

A $41 000
B $52 000
C $58 000
D $69 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. B
   Net sales = 128 000 − 4500 = 123 500
   Closing inventory = lower of cost and NRV = 16 800
   Cost of sales = 14 000 + 86 000 − 3000 + 1200 − 16 800 = 81 400
   Gross profit = 123 500 − 81 400 = $42 100

2. C
   Other income = discount received 1100 + decrease in allowance 200 = 1300
   Rent expense = 12 000 − 2000 + 800 = 10 800
   Wages = 18 500 − 1200 + 1600 = 18 900
   Insurance = 4800 + 400 − 700 = 4500
   Net profit = 52 400 + 1300 − 10 800 − 18 900 − 4500 − 5000 − 600 = $13 900

3. B
   Closing capital = assets − liabilities
   = 85 000 + 13 000 + 16 000 + 2000 − 20 000 − 9000 − 1000
   = 86 000
   86 000 = opening capital + 7000 − 5000 − 2000 + 14 000
   Opening capital = $72 000

4. C
   Current assets = 26 000 + 18 000 − 1200 + 600 + 4000 = 47 400
   Current liabilities = 15 000 + 900 + 1400 = 17 300
   Working capital = 47 400 − 17 300 = $30 100

5. A
   Net sales = 160 000 − 6000 = 154 000
   Cost of sales = 22 000 + 115 000 − 4000 + 3500 − 28 000 = 108 500
   Gross profit = 45 500
   Net profit = 45 500 + 1300 − 16 200 − 18 400 − 6200 − 900 = $5100

6. A
   Closing capital = 60 000 + 8000 − 14 000 − 2000 − 5000 = $47 000

7. A
   The owner paid a business expense privately.
   Expense increases and capital introduced increases.

8. A
   The payment was wrongly treated as business insurance. It should be drawings.
   Correction: debit drawings, credit insurance.

9. C
   Bank overdraft is a current liability.

10. B
    74 000 = opening capital + 18 000 + 5000 − 11 000
    Opening capital = $62 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. C
    Closing capital = 150 000 − 42 000 = 108 000
    108 000 = 93 000 + 10 000 − 13 000 + profit
    Profit = $18 000

12. C
    Purchases returns are deducted before calculating gross profit.

13. D
    Carriage outwards is an expense after gross profit.

14. A
    Net profit = 36 000 + 700 − 8000 − 15 000 − 1200 − 500 − 2400
    = $9600

15. C
    Opening capital = 72 000 − 18 000 = 54 000
    Closing capital = 95 000 − 24 000 = 71 000
    71 000 = 54 000 + 5000 − 9000 + profit
    Profit = $21 000

16. B
    Net non-current assets = 90 000 − 28 000 = 62 000
    Current assets = 18 000 + 12 000 + 4000 + 700 = 34 700
    Current liabilities = 13 000 + 1100 + 3000 = 17 100
    Capital = 62 000 + 34 700 − 17 100 = $79 600

17. A
    Working capital = current assets − current liabilities.

18. No correct option
    Buying inventory on credit: no change to working capital.
    Paying trade payable by cheque: no change to working capital.
    Buying equipment by cheque: working capital decreases.
    Repaying long-term loan by cheque: working capital decreases.

19. A
    Closing inventory overstated reduces cost of sales, so profit is overstated. Current assets are also overstated.

20. C
    Opening inventory understated causes profit to be overstated by 1800.
    Closing inventory overstated causes profit to be overstated by 1200.
    Total profit overstated = $3000.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. B
    Net sales = 84 000 − 3600 = 80 400
    Gross profit = 25% × 80 400 = 20 100
    Cost of sales = 80 400 − 20 100 = $60 300

22. C
    Gross profit margin = 40%, so cost of sales = 60% of sales.
    Net sales = 75 000 / 60% = $125 000

23. C
    Mark-up 33 1/3% means sales = 133 1/3% of cost.
    Cost of sales = 96 000 × 3/4 = 72 000
    Closing inventory = 15 000 + 69 000 − 72 000 = $12 000

24. C
    Draft profit = 18 400
    Closing inventory understated: add 900
    Accrued expenses omitted: deduct 500
    Prepaid insurance treated as accrued expense: add 600
    Corrected profit = $19 400

25. A
    Receivables after write-off = 22 000 − 2000 = 20 000
    Allowance = 5% × 20 000 = 1000
    Trade receivables shown = 20 000 − 1000 = $19 000

26. B
    Draft profit = 24 000
    Less omitted depreciation = 3500
    Add goods drawings adjustment = 1200
    Corrected profit = $21 700

27. A
    Goods drawings should reduce purchases and increase drawings. If not adjusted, purchases are too high, so profit is understated, and drawings are understated.

28. B
    Net profit is added in the capital section.

29. C
    Closing capital = 45 000 + 12 500 + 4000 − 9000
    = $52 500

30. A
    Capital = non-current assets + current assets − current liabilities − non-current liabilities
    = 76 000 + 31 000 − 18 000 − 25 000
    = $64 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A
    Net profit = 19 000
    Add accrued income omitted = 800
    Deduct income received in advance omitted = 600
    Deduct accrued wages omitted = 900
    Add prepaid rent omitted = 400
    Corrected net profit = $18 700

32. C
    Prepaid insurance is a current asset.

33. D
    Accrued expenses are current liabilities.

34. B
    Initial working capital = 42 000 − 19 500 = 22 500
    Paying a trade payable reduces current assets and current liabilities by the same amount, so working capital stays $22 500.

35. B
    Buying inventory on credit increases current assets and current liabilities by the same amount. Working capital remains $21 000.

36. B
    68 000 = 55 000 + 6000 − 9000 + profit
    Profit = $16 000

37. B
    Cost of sales = opening inventory + net purchases + carriage inwards − closing inventory.

38. C
    Purchases returns are included in net purchases by deducting them from purchases.

39. C
    Discount received is added after gross profit; it is not part of gross profit calculation.

40. A
    Closing capital = 124 000 − 31 000 = 93 000
    93 000 = 80 000 + 4000 − 15 000 + profit
    Profit = $24 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. No correct option
    Current assets = inventory 15 000 + trade receivables 11 000 − allowance 700 = 25 300
    Current liabilities = overdraft 2400 + trade payables 8500 + accrued expenses 600 = 11 500
    Working capital = 25 300 − 11 500 = $13 800
    The nearest listed options are not correct.

42. B
    Net sales = 90 000 − 4000 = 86 000
    Cost of sales = 12 000 + 58 000 − 2500 + 800 − 15 300 = 53 000
    Gross profit = 86 000 − 53 000 = $33 000

43. A
    Expenses = 12 000 + 18 000 + 3000 + 2500 = 35 500
    13 500 = 42 000 + other income − 35 500
    Other income = $7000

44. B
    Closing capital = 40 000 − 6000 − 7000 + 5000
    = $32 000

45. B
    Accrued expenses omitted means expenses are understated, so profit and capital are overstated.

46. A
    Accrued income omitted means income/profit is understated and current assets are understated.

47. C
    Drawings are deducted from capital.

48. A
    Closing capital = 118 000 − 16 000 − 34 000 = 68 000
    68 000 = 61 000 + 12 000 − 19 000 + net profit
    Net profit = $14 000

49. C
    The income statement calculates profit or loss. The statement of financial position shows assets, liabilities and capital.

50. No correct option
    Closing capital = 60 000 + 12 000 + 9000 + 3000 − 7000 − 20 000
    = 57 000
    57 000 = opening capital + 11 000 − 5000
    Opening capital = $51 000
    The correct answer should be $51 000, but it is not listed.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.