Level: Easy
Easy Worked Examples: Financial Statements of a Sole Proprietorship without Adjustments
These six easy examples show how to prepare the Trading and Profit & Loss Account, the Statement of Financial Position, the Capital Account and closing entries, with no adjustments and simple round figures.
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Example 1: Example 1: Trading Account, Finding Gross Profit
Question
Solution plan
The Trading Account computes gross profit. The debit side is cost (opening inventory + purchases). The credit side is sales and closing inventory. Gross profit = (Sales + Closing inventory) − (Opening inventory + Purchases). The gross profit is recorded as 'Gross profit c/d' on the debit side to balance the account, then transferred to the Profit & Loss Account.
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Opening inventory | 5,000 | Sales | 50,000 |
| Purchases | 30,000 | Closing inventory | 8,000 |
| Gross profit c/d | 23,000 | ||
| 58,000 | 58,000 |
Answer
Gross profit = (RM50,000 + RM8,000) − (RM5,000 + RM30,000) = RM58,000 − RM35,000 = RM23,000. Both sides of the account total RM58,000.
Where marks are usually lost
Example 2: Example 2: Profit & Loss Account, Finding Net Profit
Question
Solution plan
Gross profit b/d is brought to the credit side of the Profit & Loss Account. Other income (commission received) is also credited. All expenses (rent, salaries, general expenses) are debited. Net profit = (Gross profit + other income) − total expenses, recorded as 'Net profit c/d' on the debit side.
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Rent | 5,000 | Gross profit b/d | 20,000 |
| Salaries | 8,000 | Commission received | 2,000 |
| General expenses | 1,000 | ||
| Net profit c/d | 8,000 | ||
| 22,000 | 22,000 |
Answer
Net profit = (RM20,000 + RM2,000) − (RM5,000 + RM8,000 + RM1,000) = RM22,000 − RM14,000 = RM8,000. This net profit will be transferred to the Capital Account.
Where marks are usually lost
Example 3: Example 3: Combined Trading and Profit & Loss Account
Question
Solution plan
The Trading section finds gross profit first: debit (opening inventory + purchases), credit (sales + closing inventory), balanced by gross profit c/d. The Profit & Loss section starts with gross profit b/d on the credit side, adds income (commission received) and deducts expenses (salaries + rent) to give net profit c/d.
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Opening inventory | 4,000 | Sales | 45,000 |
| Purchases | 25,000 | Closing inventory | 6,000 |
| Gross profit c/d | 22,000 | ||
| 51,000 | 51,000 | ||
| Salaries | 6,000 | Gross profit b/d | 22,000 |
| Rent | 3,000 | Commission received | 500 |
| Net profit c/d | 13,500 | ||
| 22,500 | 22,500 |
Answer
Gross profit = RM51,000 − RM29,000 = RM22,000. Net profit = (RM22,000 + RM500) − (RM6,000 + RM3,000) = RM22,500 − RM9,000 = RM13,500.
Where marks are usually lost
Example 4: Example 4: Statement of Financial Position (Statement Format)
Question
Solution plan
Assets = Non-current assets (fittings, vehicle) + Current assets (inventory, debtors, bank). Owner's equity = Capital + Net profit − Drawings. Total assets must equal total equity + liabilities.
| Particulars | RM | RM |
|---|---|---|
| Non-current Assets | ||
| Fittings | 30,000 | |
| Vehicle | 20,000 | |
| Total non-current assets | 50,000 | |
| Current Assets | ||
| Closing inventory | 6,000 | |
| Debtors | 5,000 | |
| Bank | 2,000 | |
| Total current assets | 13,000 | |
| TOTAL ASSETS | 63,000 | |
| Owner's Equity | ||
| Capital | 50,000 | |
| Add: Net profit | 10,000 | |
| 60,000 | ||
| Less: Drawings | 4,000 | |
| Owner's equity | 56,000 | |
| Current Liabilities | ||
| Creditors | 7,000 | |
| Total current liabilities | 7,000 | |
| TOTAL EQUITY AND LIABILITIES | 63,000 |
Answer
Owner's equity = RM50,000 + RM10,000 − RM4,000 = RM56,000. Total Assets = RM63,000 = Total Equity and Liabilities (RM56,000 + RM7,000). The statement balances.
Where marks are usually lost
Example 5: Example 5: Capital Account, Drawings and Net Profit
Question
Solution plan
Capital increases with net profit (credit) and decreases with drawings (debit). Balance c/d = Opening capital + Net profit − Drawings. The balance c/d on the debit side balances the account and is then brought down as the opening balance b/d on the credit side for the new period.
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Drawings | 5,000 | Balance b/d (Opening capital) | 40,000 |
| Balance c/d | 47,000 | Net profit | 12,000 |
| 52,000 | 52,000 | ||
| Balance b/d (1 Jan 2025) | 47,000 |
| Particulars | RM |
|---|---|
| Capital | 40,000 |
| Add: Net profit | 12,000 |
| 52,000 | |
| Less: Drawings | 5,000 |
| Owner's equity | 47,000 |
Answer
Closing capital balance = RM40,000 + RM12,000 − RM5,000 = RM47,000. This balance is brought down as the opening capital for 2025.
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Example 6: Example 6: Closing Entries for Revenue, Expense and Inventory Accounts
Question
Solution plan
Nominal accounts (revenue and expense) are closed at period end. To close a revenue account (credit balance) such as sales, it is debited and the Trading Account credited. To close an expense/cost account (debit balance) such as purchases, opening inventory and salaries, that account is credited and the Trading or Profit & Loss Account debited. Closing inventory is opened as an asset (debit Inventory Account) with the Trading Account credited.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Sales | 40,000 | |
| Trading Account | 40,000 | |
| Trading Account | 25,000 | |
| Opening inventory | 3,000 | |
| Purchases | 22,000 | |
| Inventory (closing) | 4,000 | |
| Trading Account | 4,000 | |
| Commission received | 1,000 | |
| Profit & Loss Account | 1,000 | |
| Profit & Loss Account | 5,000 | |
| Salaries | 5,000 | |
| Total | 75,000 | 75,000 |
Answer
After the closing entries, the Trading Account gives a gross profit of RM19,000 (credit RM44,000 − debit RM25,000) and the Profit & Loss Account gives a net profit of RM15,000 (RM19,000 + RM1,000 − RM5,000). The total debits and credits of the closing entries are RM75,000 each.
Where marks are usually lost
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