A sole trader's accounting records show assets of Rs. 640,000 and liabilities of Rs. 185,000 at year-end. What is the closing capital?
Correct answer: A. Rs. 455,000
- A. Rs. 455,000
- B. Rs. 825,000
- C. Rs. 185,000
- D. Rs. 640,000
Explanation
Capital is calculated as assets minus liabilities under the accounting equation. Thus, Rs. 640,000 minus Rs. 185,000 equals Rs. 455,000.
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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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