Practice Questions
Practice Questions: Financial Statements of a Sole Proprietorship without Adjustments
This practice set covers preparing the Trading and Profit and Loss Account and the Statement of Financial Position, and closing revenue, expense and inventory accounts, for a sole proprietorship without adjustments.
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How to practise effectively
- Read the Trial Balance first and label each item as revenue, expense, asset, liability or equity before writing any account.
- Compute Cost of Sales using: Opening inventory + Net purchases + Carriage inwards − Closing inventory, then Gross Profit = Net sales − Cost of Sales.
- Transfer Gross Profit to the Profit and Loss Account, add other revenue, deduct expenses to get Net Profit, and carry Net Profit to the Capital Account.
- For full accounts in T-form and statement format, see the worked-example sets; here the focus is on the calculation steps and reasoning.
Common mistakes to avoid
- Forgetting to deduct Returns Inwards from Sales and Returns Outwards from Purchases before calculating.
- Placing Carriage Inwards in the Profit and Loss Account when it belongs to Cost of Sales (Trading Account).
- Closing real accounts (assets, liabilities, capital) at period end; these are carried forward, not closed.
- Adding Drawings to capital; Drawings must be deducted from capital in the Capital Account.
| Item | RM |
|---|---|
| Net sales | 118,000 |
| Less: Cost of Sales | 70,000 |
| Gross Profit | 48,000 |
Gross Profit is transferred to the Profit and Loss Account (see Question 2).
Practice Questions
Question 1
Question 1 (Gross Profit). Cahaya Bookstore provides the following for the year ended 31 December 2025: Sales RM120,000; Returns Inwards RM2,000; Purchases RM70,000; Returns Outwards RM1,000; Carriage Inwards RM3,000; Opening inventory RM8,000; Closing inventory RM10,000. Calculate Cost of Sales and Gross Profit.
Answer
Net purchases = 70,000 − 1,000 = RM69,000
Cost of Sales = 8,000 + 69,000 + 3,000 − 10,000 = RM70,000
Net sales = 120,000 − 2,000 = RM118,000
Gross Profit = 118,000 − 70,000 = RM48,000
Question 2
Question 2 (Net Profit). Using the Gross Profit of RM48,000 from Question 1, Cahaya Bookstore has expenses: Salaries RM15,000; Rent RM6,000; Rates RM2,000; General Expenses RM1,000. Other revenue: Commission Received RM3,000; Interest Received RM1,000. Calculate Net Profit.
Answer
Total expenses = 15,000 + 6,000 + 2,000 + 1,000 = RM24,000
Total other revenue = 3,000 + 1,000 = RM4,000
Net Profit = Gross Profit + Other revenue − Expenses
= 48,000 + 4,000 − 24,000 = RM28,000
Question 3
Question 3 (Capital Account). Cahaya Bookstore's opening capital is RM100,000. This year's Net Profit is RM28,000 and cash Drawings are RM12,000. Prepare the closing capital computation for the owner's equity section.
Answer
Closing capital = Opening capital + Net Profit − Drawings
= 100,000 + 28,000 − 12,000 = RM116,000
The owner's equity section shows Closing capital of RM116,000.
Question 4
Question 4 (Statement of Financial Position). Cahaya Bookstore balances at 31 December 2025: Fittings RM50,000; Vehicles RM40,000; Closing inventory RM10,000; Debtors RM8,000; Bank RM12,000; Cash RM2,000; Creditors RM6,000; Closing capital RM116,000. Confirm that the statement balances.
Answer
Non-current assets = 50,000 + 40,000 = RM90,000
Current assets = 10,000 + 8,000 + 12,000 + 2,000 = RM32,000
Total assets = RM122,000
Owner's equity + Liabilities = 116,000 + 6,000 = RM122,000
Total assets = Total equity and liabilities, so the statement balances.
Question 5
Question 5 (Closing revenue and expense accounts). State the correct double entry to close the following accounts at period end: (a) Sales Account, (b) Purchases Account, (c) Salaries Account.
Answer
(a) Close Sales: Debit Sales Account; Credit Trading Account.
(b) Close Purchases: Debit Trading Account; Credit Purchases Account.
(c) Close Salaries: Debit Profit and Loss Account; Credit Salaries Account.
Revenue and expenses are nominal accounts transferred to the Trading and Profit and Loss Account so their balances become zero.
Question 6
Question 6 (Real accounts). Explain why accounts such as Vehicles and Creditors are not closed at the end of the financial period, unlike Sales and Salaries.
Answer
Vehicles (an asset) and Creditors (a liability) are real accounts representing resources and obligations that still exist at the balance date.
Their balances are carried forward as the opening balances of the next period and shown in the Statement of Financial Position.
By contrast, Sales and Salaries are nominal accounts for one period only; their balances are transferred to the Trading and Profit and Loss Account and closed so the new period starts from zero.
Question 7
Question 7 (Net Loss and inventory). Sinar Maju Enterprise records Gross Profit of RM20,000 but total expenses of RM26,000. (a) Compute the period result. (b) State its effect on the Capital Account. (c) State the double entry to record closing inventory of RM9,000 at period end.
Answer
(a) Net Loss = 20,000 − 26,000 = RM6,000 (loss).
(b) The Net Loss is deducted from capital in the Capital Account, reducing owner's equity by RM6,000.
(c) Closing inventory RM9,000: Debit Inventory Account; Credit Trading Account. The closing inventory balance is carried forward and shown as a current asset in the Statement of Financial Position.
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