5.1 Sole trader financial statements
In order to be able to compare sole trader financial statements with company financial statements this section first introduces sole trader financial statements. Below are the balance sheet and the income statement for a sole trader called Ian Hodgins.
Balance sheet
Below is the balance sheet for Ian Hodgins at 31 December 20X2. It shows total assets = total capital + total liabilities.
Non-current assets are shown at their cost less the accumulated depreciation which equals net book value. Current assets are shown at their historical costs. Liabilities are also shown as non-current and current liabilities.
Capital starts from opening capital at 1 January 20X2 to which is added the profit for the year and from which is deducted the drawing during the period to arrive at the closing capital at 31 December 20X2.
| Cost | Accumulated depreciation | Net book value | |
|---|---|---|---|
| £ | £ | £ | |
| ASSETS | |||
| Non-current assets | 100,000 | 10,000 | 90,000 |
| Total 100,000 | Total 100,000 | 90,000 | |
| Current assets | |||
| Inventory | 9,200 | ||
| Receivables | 7,600 | ||
| Prepayments | 600 | ||
| Bank | 4,000 | ||
| 21,400 | |||
| Total assets | Total 111,400 | ||
| CAPITAL AND LIABILITIES | |||
| Capital | |||
| Balance at 1st January 20X2 | 75,000 | ||
| Add: Profit for the year | 19,700 | ||
| Less: drawings | (900) | ||
| Total capital balance at 31 December 20X2 | 93,800 | ||
| Liabilities | |||
| Non-current liabilities | |||
| Interest free loan from Dad | 6,000 | ||
| Current liabilities | |||
| Payables | 8,800 | ||
| Accruals | 2,800 | ||
| 11,600 | |||
| Total capital and liabilities | Total 111,400 | ||
Income statement
Below is the income statement for Ian Hodgins for the year ended 31 December 20X2. At the top is the trading account, which is the part that determines gross profit for the period. This is followed by the remaining part of the income statement, which shows overheads and determines net profit for the period.
| £ | £ | |
|---|---|---|
| Sales revenue | 160,000 | |
| Cost of sales: Opening inventory | 3,300 | |
| Add: Purchases | 109,100 | |
| Less: Closing inventory | (9,200) | |
| Cost of goods sold | (103,200) | |
| Gross profit | 56,800 | |
| Less: Other expenses: | ||
| Rent | 24,000 | |
| Electricity | 3,800 | |
| Business rates | 3,400 | |
| Depreciation expense | 5,000 | |
| Irrecoverable receivables expense | 900 | |
| 37,100 | ||
| Net profit for the year | Total 19,700 | |