Chapter 9
Final Accounts 1 - Sole Trader
Sole Trader
- A type of business organisation owned by one person.
- This person has sole responsibility for the business.
Advantages
of being a sole trader
Disadvantages
of being a sole trader
- Keeps all the profits
- Makes all the decisions,
Eg opening hours, nature of the
business
- Easy to set up – fewer legal
procedures than other types of
business organisation
- Suffers all the losses
- No one to help with decision making
– not every person is an expert at
everything
- Lack of capital for expansion
- Unlimited liability
Unlimited liability
- The owner is liable for all business debts and if there is not enough
money in the business they will have to pay debts from the sale of their
personal assets
Eg house or car.
Accounts in Sole Traders
1) Trading Account
Shows the gross profit on trading, i.e. goods purchases and sold by a business.
2) Profit and loss account
Shows the overall net profit or net loss for the accounting period after all
expenses and other income are taken into account.
Definitions
Drawings
Items of value taken out of the business by the owner for his/her own private
use
Eg stock or cash.
Interest
The cost of borrowing money.
Patent
A grant of protection for an invention.
Owning a patent gives a person or business the right to stop someone else
making, using or selling their invention without their permission.
