The statement of profit or loss for a sole trader
What the statement of profit or loss shows, which balances belong in it, and the order they go in.
In this room: 3 tasks, 9 questions
- What the statement shows3 questions
- The order of the statement3 questions
- Picking the figures out of a list3 questions
A sole trader is one person who owns a business. Priya Marlow owns Marlow Cycles, a bike shop.
The statement of profit or loss sets the income of a period against the expenses of the same period. The period is usually a year, so the heading reads: for the year ended 31 March.
- Income
- what the business earns, mostly from sales
- Expense
- a cost of running the business in the period
- Profit for the year
- income is more than expenses
- Loss for the year
- expenses are more than income
Assets, liabilities, capital and drawings are not income or expenses. They stay out of this statement.
Answer the questions below
2 more questions follow in this task.
The statement is built in steps, and always in the same order.
- Revenue: sales less sales returns
- Less cost of sales: what the goods sold cost the business
- Gross profit: revenue less cost of sales
- Less expenses: the other costs of running the business
- Profit or loss for the year: gross profit less expenses
If the expenses come to more than the gross profit, the last line is a loss for the year.
Answer the questions below
2 more questions follow in this task.
The figures come from the balances in the books. Some balances belong in the statement and some do not.
| Balance | £ |
|---|---|
| Sales | 96,000.00 |
| Sales returns | 1,000.00 |
| Wages | 18,000.00 |
| Rent | 6,000.00 |
| Electricity | 2,400.00 |
| Drawings | 10,000.00 |
| Shop fittings at cost | 12,000.00 |
Revenue is sales less sales returns. Shop fittings are an asset that lasts for years, so their cost is not an expense of this year.
Answer the questions below
2 more questions follow in this task.