A sole trader has trade receivables of Rs. 100,000 and estimates an allowance for doubtful debts of 5%. What net receivables are reported?
Correct answer: A. Rs. 95,000
- A. Rs. 95,000
- B. Rs. 100,000
- C. Rs. 105,000
- D. Rs. 5,000
Explanation
Five percent of Rs. 100,000 is Rs. 5,000, so the reported net receivables are Rs. 95,000. The allowance reduces the carrying amount because some receivables may not be collected.
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About Financial Statements of Sole Traders
Sole trader statements calculate revenue, cost of sales, gross profit, operating expenses and net profit, then present assets, liabilities and owner’s capital in the statement of financial position. Adjustments for closing inventory, accruals, prepayments, depreciation, bad debts, drawings and additional capital connect the two statements.
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