l e a r n i n g o b j e c t i v e s
When you have studied this chapter you will be able to:
understand the format of final accounts for sole traders
prepare final accounts for sole trader businesses from the book-keeper's trial balance
understand the link between double-entry book-keeping and final accounts
distinguish between capital expenditure and revenue expenditure
C A S E S T U D Y
S t a r t i n g o u t i n b u s i n e s s
Olivia Boulton used to work as a buyer of kitchen and cookware goods for a large department
store in central London. She was good at her job and knew the type of goods that sold well.
Two years ago, Olivia took the decision to set up in business on her own, selling a range of
kitchen and cookware goods designed and manufactured in Italy. She decided to set up as a
sole trader rather than taking on a partner or forming a limited company. She wanted the
freedom of being her own boss, although she knew the financial risks involved in ‘going it
In her first year of trading Olivia identified suitable rented premises in her home town of
Brighton. She liked the premises so much that a year later she took the option of buying them
and refitting the shop – all with the help of a bank loan.
Business has gone well since opening day. In fact, as well as selling to shop customers, she
has also built up a small amount of wholesale trade, where she sells imported kitchen goods
to other shops.
Now that the business is well established, Olivia feels that it is time she understood financial
matters rather better. She employs a book-keeper to deal with day-to-day transactions and to
write up the books. She has also taken on an accountant to prepare her year-end financial
statements and deal with the tax calculations based on the profit she has made.
But she wants to know more about these financial statements: the trading and profit and loss
account and the balance sheet . . .
SOLE TRADER FINAL ACCOUNTS
S O L E T R A D E R S
Sole traders are people who are in business on their own: th