Free Financial Statements of Sole Traders MCQs with Answers
34 Financial Statements of Sole Traders MCQs from Accounting, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
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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- A. Rs. 60,000
- B. Rs. 55,000
- C. Rs. 65,000
- D. Rs. 70,000
Explanation: Net profit is calculated by deducting all listed expenses from gross profit: Rs. 95,000 minus Rs. 35,000 equals Rs. 60,000.
Correct answer: Rs. 60,000- A. Trade receivables
- B. Bank overdraft
- C. Prepaid insurance
- D. Office equipment
Explanation: A bank overdraft is normally repayable on demand and is therefore shown as a current liability.
Correct answer: Bank overdraft- A. Capital increases and purchases increase
- B. Sales increase and drawings decrease
- C. Drawings increase and purchases decrease
- D. Expenses increase and sales decrease
Explanation: Goods taken by the owner are treated as drawings, not as business sales.
Correct answer: Drawings increase and purchases decrease- A. Rs. 3,000
- B. Rs. 12,000
- C. Rs. 18,000
- D. Rs. 15,000
Explanation: Under accrual accounting, income earned during the period is reported whether or not it has been received in cash. The full Rs.
Correct answer: Rs. 15,000- A. As a current liability
- B. As a current asset
- C. As a non-current asset
- D. As owner's capital
Explanation: A credit balance in the cash book generally represents a bank overdraft.
Correct answer: As a current liability- 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.
Correct answer: Purchase returns increase by Rs. 20,000- A. It is credited to bad debts expense
- B. It is treated as owner's drawings
- C. It is added to closing inventory
- D. It is debited to bad debts expense
Explanation: An irrecoverable customer balance is a bad debt and is charged as an expense in the income statement.
Correct answer: It is debited to bad debts expense- A. As a selling expense
- B. As a capital expenditure
- C. As a revenue expense
- D. As an accrued liability
Explanation: Expenditure that increases an asset's useful capacity provides benefits beyond the current accounting period, so it is capital…
Correct answer: As a selling expense- A. A capital receipt
- B. Other income
- C. A non-current liability
- D. An increase in trade receivables
Explanation: A discount received reduces the cost of settling a trade payable and is generally recognised as income or a reduction of purchase cost…
Correct answer: Other income- 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.
Correct answer: It reconciles opening and closing owner's capital- A. As an addition to closing inventory
- B. As a deduction from sales revenue
- C. As a selling and distribution expense
- D. As a non-current business asset
Explanation: Carriage outward is the cost of delivering goods to customers, so it is normally included among selling and distribution expenses.
Correct answer: As a selling and distribution expense- A. Capital increases and revenue decreases
- B. Assets increase and revenue increases
- C. Expenses increase and liabilities decrease
- D. Assets increase and liabilities increase
Explanation: The bank balance increases by Rs. 200,000, while the amount owed to the bank creates a liability of the same amount.
Correct answer: Assets increase and liabilities increase- A. A gain of Rs. 10,000
- B. A loss of Rs. 10,000
- C. Revenue of Rs. 50,000
- D. No profit or loss is recognised
Explanation: The gain equals the sale proceeds less the machine's carrying amount, giving Rs. 50,000 minus Rs. 40,000, or Rs. 10,000.
Correct answer: A gain of Rs. 10,000- A. Receivables increase and cash decreases
- B. Cash increases and sales revenue increases
- C. Cash increases and receivables decrease
- D. Profit increases by Rs. 30,000
Explanation: The receipt converts an amount due from the customer into cash, so cash rises and trade receivables fall by Rs. 30,000.
Correct answer: Cash increases and receivables decrease