Prepare a sole-trader statement of profit or loss
Build a period statement from revenue, cost of sales, other income and expenses for trading and service businesses.
Cambridge IGCSE Accounting 0452 / (9–1) 0985, 2027–2029 Version 1. These lessons follow the 2027–2029 syllabus only; the separate 2026 syllabus update is not yet mapped. Written practice is self-checked, not an official Cambridge grade. Full timed-paper practice and human subject-teacher review remain pending.
Before you begin
- No previous accounting study is assumed. Keep the business, transaction and accounting period in view, and distinguish a resource, a claim and a performance result.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which amount reduces purchases when calculating net purchases?
What you will learn
- Explain the importance of a sole trader's statement of profit or loss
- Prepare statements of profit or loss for trading, service, manufacturing and combined businesses
- Calculate gross profit and profit for the year
Start with the business activity
A sole trader may operate a trading, service, manufacturing business or a combination of these. A trading business sells goods. Its cost of sales is opening inventory plus net purchases and other direct costs, less closing inventory. Gross profit is revenue less cost of sales.
A service business earns fees by providing services. Present service revenue and the expenses for the period; include a cost-of-sales or direct-service-cost section only when the information and presentation require it. Do not invent inventory for a service business with none.
For a manufacturing business, prepare a manufacturing account to find cost of production, then use that figure in the statement of profit or loss. Section 5.4 develops the manufacturing account. A business combining activities should keep revenue and related costs clear so the result can be interpreted.
Complete the period result
After gross profit, add other income and deduct expenses for the period to find profit for the year. Use adjusted amounts where accruals, prepayments, depreciation, irrecoverable debts or inventory valuation have been supplied.
A statement of profit or loss reports performance over a stated period. It is not a cash summary or a statement of financial position.
Pause and explain
Revenue is $42,000 and cost of sales is $25,500. What is gross profit?
Worked example
A trader has revenue $60,000, opening inventory $7,500, net purchases $32,000, carriage inwards $1,000, closing inventory $8,500, commission income $500, wages $10,000, rent $5,000 and bank charges $200. Prepare the key profit figures.
Show the worked solution
- Cost of sales = 7,500 + 32,000 + 1,000 − 8,500 = $32,000.
- Gross profit = 60,000 − 32,000 = $28,000.
- Profit for the year = 28,000 + 500 − 10,000 − 5,000 − 200 = $13,300.
Answer Gross profit is $28,000 and profit for the year is $13,300. Present the commission separately as other income and deduct the three expenses.
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 shop reports sales $38,000, opening inventory $4,500, purchases $20,000, purchases returns $600, carriage inwards $400 and closing inventory $5,300. Calculate net purchases, cost of sales and gross profit.
Give me a hint
Deduct returns from purchases, add carriage inwards, then subtract closing inventory from goods available.
Compare my reasoning
- Net purchases = 20,000 − 600 = $19,400.
- Cost of sales = 4,500 + 19,400 + 400 − 5,300 = $19,000.
- Gross profit = 38,000 − 19,000 = $19,000.
Net purchases $19,400; cost of sales $19,000; gross profit $19,000.
Look for these in your work
- Returns treated correctly
- Cost of sales correct
- Gross profit correct
A service trader earns fees of $54,000 and has adjusted wages $16,800, rent $7,200 and insurance $1,500. Calculate profit for the year and explain why a cash total is not enough.
Give me a hint
Deduct adjusted period expenses from fees earned.
Compare my reasoning
- Total expenses = 16,800 + 7,200 + 1,500 = $25,500.
- Profit = 54,000 − 25,500 = $28,500.
- Accruals or prepayments may make expense differ from cash paid.
Profit for the year is $28,500. The statement uses income earned and expenses incurred for the period, not just cash movements.
Look for these in your work
- Expenses total correct
- Profit correct
- Period basis explained
A sole trader combines retail and repair services. Retail sales are $40,000 and retail cost of sales is $22,000; repair fees are $18,000 with direct service wages $7,000; discount received is $400; rent is $6,500 and administration salaries are $4,000. Prepare the key profit figures.
Give me a hint
Show the trading result, service income and related direct cost, then other income and period expenses.
Compare my reasoning
- Trading gross profit = 40,000 − 22,000 = $18,000.
- Service contribution = 18,000 − 7,000 = $11,000; other income is $400.
- Profit for the year = 18,000 + 11,000 + 400 − 6,500 − 4,000 = $18,900.
Trading gross profit $18,000; service contribution $11,000; other income $400; administration expenses $10,500; profit for the year $18,900.
Look for these in your work
- Trading result separated
- Service cost matched
- Combined profit correct
Common mistakes
- Subtracting closing inventory from revenue instead of cost of sales
- Adding purchases to revenue
- Calling commission income sales revenue without evidence
- Using cash paid instead of adjusted period expenses
What can you explain now?
How is gross profit calculated for a trading business?
Compare with the explanation
Revenue less cost of sales
Cost of sales is deducted from trading revenue before other expenses.
After trying it yourself, choose your next review. This is your self-assessment.
Your review choice appears on Today. Sign in to sync it across devices.
Make it stick
Why is a statement of profit or loss prepared for a stated period?
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.