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Topic guide

How to prepare sole trader financial statements

You can list the accounts, but arranging them into three statements always goes wrong somewhere.

A sole trader’s year ends with three statements. The trading account shows gross profit, the profit and loss statement shows net profit, and the statement of financial position shows what the business owns and owes at a date.

This topic comes after the trial balance and before adjustments.

Which item goes into which statement?

Use this short map as a first check.

Item Statement
Sales, purchases, opening and closing stock Trading account
Rent, wages, electricity, discount received Profit and loss statement
Equipment, stock, debtors, bank Statement of financial position (assets)
Creditors, loans Statement of financial position (liabilities)
Capital and drawings Statement of financial position (capital)

Profit, the result of the first two statements, is added to capital in the third.

An example to orient you

An original one-year shop: sales 48 000, opening stock 6 000, purchases 30 000, closing stock 8 000. Cost of sales is 6 000 + 30 000 − 8 000 = 28 000, so gross profit is 20 000.

If rent, wages and electricity total 13 500 and discount received is 400, net profit is 20 000 + 400 − 13 500 = 6 900. That single figure then moves into the capital section of the statement of financial position.

Who should start where?

Test all three on the sole trader practice set. For a teacher who checks your layout line by line, see online one-to-one Accounting tuition.

Common questions

What are the three statements of a sole trader?

The trading account gives gross profit, the profit and loss statement gives net profit, and the statement of financial position shows assets, liabilities and capital at a date.

Which statement shows drawings?

Drawings appears in the capital section of the statement of financial position, where it is deducted from capital. It never appears in the profit and loss statement.

Why do I get a different net profit from my friend?

Usually one of you has placed an item in the wrong statement, or used the wrong closing stock. Compare gross profit first, then the expense list.

If your statements balance but lose marks on placement, a one-to-one Accounting teacher can check each line of a full set with you and show why an item belongs where it does.

  • Online one-to-one lessons for your child with an experienced teacher.
  • Your first class is a one-hour trial, from RM50. The fee is agreed before you book.
  • Happy with the teacher? Continue with lessons of about 1.5 hours. If not, ask for another teacher.