Financial Statements for Sole Traders

Advanced Bookkeeping Revision - Disposals A business disposes of a car with a purchase price of £5,000. Depreciation has been charged on reducing balance basis at 15% per year, and has a residual balance of £1,000, depreciation is charged for every month the car is owned. The car was bought on 01 Apr 20X4 and was sold in for £2,657 on 30 Jun 20X6. What was the loss or gain on disposal? How long did we have the car for? 2 ¼ years Work out depreciation – 5000 x 0.15 = 750, 4250 x 0.15 = 637.5, 3612.5 x 0.15 = 541.875 x 0.25 = 135.47 Accumulated Dep = 1522.97 Empty the asset at cost account into the disposals, empty the accumulated depreciation into the disposals account, account for the bank receipt. The balancing figure will go to the P&L as a £820.03 as a loss (credit in disposals, debit in profit or loss). Cost of sales = opening inventory + purchases – closing inventory.

Advanced Bookkeeping Revision - Doubtful Debts A business maintains its doubtful debts allowance as 7.5% of the trade receivables figure. At the end of FY X4 the allowance was £300, the SLCA at the end of FY X5 is £5498. What figure will be the adjustment from the ETB to the Statement of Profit or Loss and the Statement of Financial Position for FY X5? SoFP = CR £412.35 SoPL = DR £112.35

Aims of the Session Introduction to sole trader financial statements. Introduction to adjustments of ETB.

What is a Sole Trader – Lesson 1 People who run their own business. Limited capital therefore the business is small. Profits often re-invested in the business. Advantages: Cheap and easy to set up. Independence. Personal touch from owner. Easy to establish (in the UK). Disadvantages: Unlimited liability for debts. Limited expansion opportunity. Owner may have to work long hours. People who run their own business. Limited capital therefore the business is small. Profits often re-invested in the business. Advantages: Cheap and easy to set up. Independence. Personal touch from owner. Easy to establish (in the UK). Disadvantages: Unlimited liability for debts. Limited expansion opportunity. Owner may have to work long hours.

Financial Statements of Sole Traders Statement of profit or loss: Taken over the year. Shows income and expenditure. Statement of financial position. As at date. Shows the value of the business at a certain point in time. Why are they adjusted? Adjustments show a more faithful and relevant position of the company. Comparisons can be made year on year. Assures users of the financial services of the information and makes them understandable.

Tutor led Charity Burbage Mention about order of liquidity, Tick off items on the ETB when accounted for so everything is accounted for. Items may be listed alphabetically so go through the trial balance carefully. Adjustments remember IAS 2 – lower of cost and net realisable value.

Closing Inventory Deduct £10,500 from purchases as part of cost of sales on Statement of Profit or Loss, therefore a CREDIT entry on ETB. On the Statement of Financial Position it appears as current asset, therefore a DEBIT entry on ETB.

Cost of Sales Cost of sales - how much has been spent on inventory during the year. Opening inventories + Purchases Carriage inwards - Purchase returns outwards = Cost of sales Carriage inwards included as goods are ‘delivered to the door’ Purchase returns need to be deducted as the business no longer has the items Carriage out is shown as an expense on the PL not as part of cost of sales.

Other Items on the Financial Statements Depreciation charge Allowance for doubtful debts Disposals of non-current assets

Questions

Exercises