SOLE TRADER’S FINAL ACCOUNTS

he final accounts represent the presentation of financial information for a particular period or year to the users of financial report. The final accounts of a sole trader basically consist of statement of profit or loss and statement of financial position. Our focus in this study unit is the statement of profit or loss without end of year adjustment. The preparation of statement of profit or loss will enable the business owner to ascertain the profit or loss from the business for a particular period, month or year. Statement of profit or loss is technically divided into two sections to show the gross profit or loss and the net profit or loss for a particular period. DEFINITION OF TECHNICAL TERMS Let us look at some basic words that will come up regularly under the final accounts of a sole trader in this unit and the next two units namely units 18 and 19. Sales Sales represent total of all credit and cash sales made to a third party. This excludes good taken by the owner for personal use and sales of non-current assets. Returns Inwards They are goods previously sold to customers but were later returned either in whole or in partprobably as a result of: i. Wrong specification, model, colour etc. ii. Deficiency iii. Disagreement between the buyer and seller that can be traced to either pricing, discount, payment terms etc. iv. Shortage in quantity, weight and other measuring discrepancies. v. Government policy. The total amount of returns inwards will be deducted from sales value. Opening Stocks These are the value of stock of goods meant for sale that are available with the business at the beginning of the accounting year or period. Purchases Purchases represent total value of goods that are bought for cash and on credit for resale. Thisdoes not include the purchases of non-current assets. Carriage Inward This represents the cost of transporting goods meant for resale into the organisation. Carriage inward is added to purchases because it is an additional cost incurred as goods are bough for resale by the business which enables the goods to get to where buyers can come for them. Returns Outwards These are goods previously bought for resale but later returned to the supplier due to one reason or the other such as late delivery and wrong specification. The total value of returns outwards should be deducted from the purchases of the same accounting period.