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Companies and financial accounting
Companies and financial accounting

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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.

Ian Hodgins Balance sheet at 31 December 20X2
Cost Accumulated depreciation Net book value
£ £ £
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
Total assets Total 111,400
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
Non-current liabilities      
Interest free loan from Dad     6,000
Current liabilities      
Payables   8,800  
Accruals   2,800  
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.

Ian Hodgins Income statement for the year ended 31 December 20X2
  £ £
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  
Net profit for the year   Total 19,700