Theory question 101
Final Accounts of a Sole TraderSection A
1. (a) Explain the purpose of preparing each of the following: (i) trading account; (ii) profit and loss account; and (iii) balance sheet (b) List six items each found in the asset and liability sides of the balance sheet of a sole proprietor.
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(a)(i) Trading account: to find the cost of goods sold and the gross profit or loss on trading.
(ii) Profit and loss account: to find net profit or loss by setting expenses against gross profit and other income.
(iii) Balance sheet: to show the financial position (assets, liabilities and capital) at a date.
(b) Assets (any six): land and buildings, plant and machinery, motor vehicles, furniture and fittings, investments, stock, debtors, prepayments, bank, cash. Liabilities/capital side (any six): capital, net profit (less drawings), long-term loans, bank overdraft, creditors, accrued expenses, bills payable, income received in advance.
One purpose for each statement; then two lists of six.