GOING SOLO UNIT 2C THE FINAL ACCOUNTS OF A SOLE TRADER

The main aim of the sole trader is to make a profit 2C – THE FINAL ACCOUNTS TRADING The main aim of the sole trader is to make a profit Profit is made by trading stock ie buying and selling buying stock at a lower price and selling it at a higher price – the difference is Gross Profit We take trading figures from the Trial Balance - Sales Sales Returns Purchases Purchases Returns and organise them in a Trading Account to calculate Gross Profit

(This assumes all the goods purchased were sold) 2C – THE FINAL ACCOUNTS TRADING ACCOUNT A TRADER TRADING ACCOUNT FOR YEAR ENDED 31 DECEMBER £ £ Sales 5,400 Less Sales Returns 120 5,280 Less Cost of Goods Sold: Purchases 2,800 Less Purchases Returns 50 Cost of Goods Sold 2,750 GROSS PROFIT 2,530 (This assumes all the goods purchased were sold)

Opening Stock Closing Stock 2C – THE FINAL ACCOUNTS TRADING ACCOUNT It is normal for businesses to have goods in stock at the beginning of the year and have stock left unsold at the end of the year Goods in stock at the beginning of the year is called: Opening Stock Stock unsold at the end of the year is called: Closing Stock These need to be included in the Trading Account so Gross Profit is calculated on goods actually sold.

Less Cost of Goods Sold: Opening Stock 500 Add Purchases 2,800 2C – THE FINAL ACCOUNTS TRADING ACCOUNT A TRADER TRADING ACCOUNT FOR YEAR ENDED 31 DECEMBER £ £ £ Sales 5,400 Less Sales Returns 120 5,280 Less Cost of Goods Sold: Opening Stock 500 Add Purchases 2,800 Less Purchases Returns 50 2,750 3,250 Less Closing Stock 250 Cost of Goods Sold 3,000 GROSS PROFIT 2,280

The sole trader must pay all expenses out of Gross Profit 2C – THE FINAL ACCOUNTS PROFIT AND LOSS ACCOUNT The sole trader must pay all expenses out of Gross Profit Gross Profit less Expenses = Net Profit This is done by listing the expense account balances from the Trial Balance in the Profit and Loss Account which is tacked on to the end of the Trading Account after Gross Profit £ £ GROSS PROFIT 2,280 Less Expenses: Rent 200 Wages 800 Insurance 80 Heating and Lighting 250 1,330 NET PROFIT 950

The Trading and Profit and Loss Account BALANCE SHEET 2C – THE FINAL ACCOUNTS The remaining items in the Balance Sheet, and any other appropriate figures are then entered into the Balance Sheet. The Trading and Profit and Loss Account together with the Balance Sheet make up the firm’s FINAL ACCOUNTS

KEY WORDS Open your key words jotter and copy these down: 2C – THE FINAL ACCOUNTS Open your key words jotter and copy these down: Trading Account – where the Gross Profit is calculated Turnover – Sales less Sales Returns (also called Net Sales) Cost of Goods Sold – how much the goods sold, cost the sole trader to buy in Gross Profit – profit from trading before expenses are paid Stock – goods not yet sold Net Profit – profit from trading after expenses are paid Final Accounts – Trading and Profit and Loss Account and Balance Sheet