Goods costing Rs. 20,000 are returned to a supplier by a sole trader. What is the effect of this transaction?
Correct answer: C. Purchase returns increase by Rs. 20,000
- A. Purchases increase by Rs. 20,000
- B. Sales returns increase by Rs. 20,000
- C. Purchase returns increase by Rs. 20,000
- D. Trade receivables increase by Rs. 20,000
Explanation
Goods returned to a supplier are purchase returns, also called returns outward. They reduce the cost of purchases and normally reduce the amount payable to the supplier.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
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.
Practise Financial Statements of Sole Traders
34 free Financial Statements of Sole Traders MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Accounting questions like this
Accounting is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Financial Statements of Sole Traders questions
A sole trader's cash book shows a credit balance at the reporting date. How is this balance normally presented?
A sole trader earns commission of Rs. 15,000 during the year, but Rs. 3,000 remains receivable at year-end. What amount of commission income is reported for the year?
A sole trader withdraws goods costing Rs. 8,000 for personal use. What is the effect on the financial statements?
A customer owing Rs. 9,000 is declared insolvent, and the amount is no longer recoverable. How is this item treated?
A sole trader spends Rs. 120,000 extending the useful capacity of an existing machine. How is this expenditure normally classified?
A sole trader receives a cash discount from a supplier for prompt payment. In the financial statements, this discount is normally treated as: