A sole trader is a business owned and run by one person. This module teaches how to turn adjusted ledger balances into an income statement and a statement of financial position, and how the owner’s drawings and capital connect them.
It sits within the wider IGCSE Accounting subject guide and follows inventory and cost of sales. The next step in the subject is partnership accounting. Check the current Cambridge syllabus for the exact wording and scope in your exam year.
Why does this topic matter?
Most topics in Accounting feed into these two statements. Depreciation, accruals, receivables and inventory are all adjustments that only make sense when you see where they end up. Questions in this area are often long, and a method that keeps each step separate saves marks.
What should you know first?
You should be comfortable with double entry, with the adjustments for accruals and prepayments and receivables, and with cost of sales. If you can work out cost of sales from opening inventory, purchases and closing inventory, you are ready.
An orienting example
Zul’s Phone Repairs has revenue of RM40,000 and cost of sales of RM22,000. Expenses are RM7,500. Opening capital was RM12,000 and drawings RM4,000.
- Gross profit: 40,000 − 22,000 = 18,000.
- Profit for the year: 18,000 − 7,500 = 10,500.
- Closing capital: 12,000 + 10,500 − 4,000 = 18,500.
- Net assets: the statement of financial position must also show 18,500.
Check: 40,000 − 22,000 = 18,000, then 18,000 − 7,500 = 10,500, then 12,000 + 10,500 = 22,500 and 22,500 − 4,000 = 18,500.
What order should you study the lessons in?
- Build an income statement from adjusted data: place revenue, cost of sales, other income and adjusted expenses in the correct blocks.
- Prepare a statement of financial position: classify assets and liabilities and carry the profit into capital.
- Account for drawings separately from expense: keep the owner’s personal withdrawals out of profit.
- Explain profit versus capital movement: say clearly why profit, capital and cash are three different figures.
- Check agreement without forcing a balancing figure: find the real cause when the statements do not agree.
What traps catch students?
The common traps are small and avoidable. Know them before you start.
- Using cash paid for an expense instead of the amount for the year.
- Putting drawings in the income statement.
- Deducting the allowance among the liabilities rather than from receivables.
- Showing accumulated depreciation as a liability.
- Adding a “sundry” line to make the statement agree.
How should you use the practice set?
Finish the lessons first, then attempt the mixed practice set on paper without peeking. Mark your work against the worked answers and note each error in the mistake log.
The double-entry and ledger trainer is useful when an adjustment is the reason a statement does not agree. Repeat any question that went wrong a few days later, so that the correction stays.
If your own examples keep getting stuck at the same step, our teachers can work through them in online one-to-one Accounting tuition.