Which statement best describes the purpose of the statement of changes in owner's capital for a sole trader?
Correct answer: B. It reconciles opening and closing owner's capital
- A. It reports only cash received from customers
- B. It reconciles opening and closing owner's capital
- C. It lists only non-current assets at cost
- D. It calculates the business's gross purchases
Explanation
The statement reconciles opening capital with closing capital by considering profit or loss, additional capital introduced and drawings. The other options describe cash flow, asset records or purchase information rather than changes in owner's equity.
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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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