A sole trader receives rent from a portion of business premises. In which section is this income normally reported?
Correct answer: A. Other income in the income statement
- A. Other income in the income statement
- B. Current liabilities in the statement of financial position
- C. Cost of sales in the income statement
- D. Owner's drawings in the capital section
Explanation
Rent received from using part of the premises is income earned by the business and is normally shown as other income. It is not sales revenue unless renting property is the trader's main business.
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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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