Prepare a sole trader's statement of financial position
Classify sole-trader assets and liabilities, calculate closing capital and check that the statement balances.
Section 1.5 · Preparation of financial statements
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover objective 1.5.2 only: sole-trader statements from full and incomplete records. Adjustments (1.5.1) have separate lessons; partnerships (1.5.3) and limited companies (1.5.4) remain to be mapped. Practice is self-checked, not an official Cambridge grade.
Before you begin
- Use the Topic 1.2 double-entry system and Topic 1.5.1 period adjustments. Distinguish business profit from owner drawings and capital introduced.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Does a sole trader's drawing reduce business profit?
What you will learn
- Classify non-current assets, current assets and liabilities
- Calculate closing capital from owner movements and profit
- Check the accounting equation at the reporting date
Show what the business owns and owes
A statement of financial position reports balances at a date. Show non-current assets at carrying amount after accumulated depreciation and relevant adjustments. Current assets can include inventory, trade receivables net of an allowance, prepayments and bank; current liabilities can include trade payables, accruals and bank overdrafts.
Classify an item according to its nature and the information given. Drawings are an owner withdrawal that reduces capital, not a liability to an external party. A loan payable is a liability, while the owner's capital is equity.
Reconcile the owner's capital
For a sole trader, closing capital = opening capital + capital introduced + profit for the year − drawings, subject to other stated movements. If the question gives closing capital, this relationship can help verify profit or a missing owner movement.
Total assets should equal total liabilities plus closing capital. If they do not, check classifications, current depreciation, irrecoverable debts, inventory, accruals and the capital calculation instead of adding an unsupported balancing amount.
Pause and explain
Opening capital is $18,000, profit $6,000, drawings $2,500 and no capital introduced. What is closing capital?
Worked example
Non-current assets at cost are $26,000 and accumulated depreciation $7,000. Inventory is $4,200; receivables $5,800 less allowance $300; bank $2,700; prepayments $600; payables $4,000 and accruals $700. Opening capital is $25,000, profit $8,600, drawings $7,300 and capital introduced $1,000. Check closing capital and the statement total.
Show the worked solution
- Non-current assets carrying amount = 26,000 − 7,000 = $19,000.
- Current assets = 4,200 + (5,800 − 300) + 2,700 + 600 = $13,000; total assets = $32,000.
- Closing capital = 25,000 + 8,600 + 1,000 − 7,300 = $27,300. Liabilities = 4,000 + 700 = $4,700; liabilities plus capital = $32,000.
Answer The statement balances: assets $32,000 = liabilities $4,700 + closing capital $27,300.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A sole trader has opening capital $40,000, profit $12,000, drawings $8,500 and capital introduced $3,000. Find closing capital.
Give me a hint
Add profit and capital introduced; deduct drawings.
Compare my reasoning
- Start with opening capital $40,000.
- Add $12,000 profit and $3,000 introduced; deduct $8,500 drawings.
- Closing capital = $40,000 + 12,000 + 3,000 − 8,500 = $46,500.
Closing capital is $46,500.
Look for these in your work
- Owner movements classified
- Signs correct
- Closing amount correct
Assets total $58,000. Closing capital is $43,500 and liabilities total $14,500. Does the statement balance?
Give me a hint
Compare assets with capital plus liabilities.
Compare my reasoning
- Liabilities plus capital = 14,500 + 43,500 = $58,000.
- This equals total assets.
- The statement balances, based on the figures supplied.
Yes. Assets of $58,000 equal liabilities of $14,500 plus capital of $43,500.
Look for these in your work
- Equation set up
- Totals equal
- Conclusion justified
A bookkeeper records a $4,000 owner withdrawal as wages expense. Explain which totals are misstated and how to reclassify it.
Give me a hint
Separate business expenses from the owner's equity movements.
Compare my reasoning
- Wages expense is overstated by $4,000 and profit understated by $4,000.
- Drawings are understated by $4,000 and closing capital is overstated relative to the correct treatment.
- Reverse the expense and record the withdrawal as drawings; recompute profit and closing capital.
Reclassify the $4,000 from wages expense to drawings. Profit rises by $4,000 and drawings rise by $4,000; the correction removes the misclassification without changing the cash movement.
Look for these in your work
- Profit effect identified
- Capital effect identified
- Reclassification stated
Common mistakes
- Showing assets at cost without deducting accumulated depreciation
- Subtracting the allowance from profit twice
- Treating drawings as an expense or an external liability
What can you explain now?
How are trade receivables shown when an allowance exists?
Compare with the explanation
As receivables less the allowance
The allowance reduces the net amount expected to be collected.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Write the closing-capital formula and the statement-of-financial-position equation.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.