Accounting – 5.1 Sole traders | e-Consult
5.1 Sole traders (1 questions)
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Answer:
Adjustment to Trading Account: A deduction of £5,000.
Explanation:
- When goods are taken for personal use, the company is effectively selling those goods to the owner at cost.
- This reduces the cost of goods sold and therefore reduces the profit figure.
- The adjustment is made to the Trading Account to ensure that the profit figure accurately reflects the profit made from the sale of goods to customers, not the goods taken for personal use.
- The calculation is: £5,000 (goods taken) is deducted from the opening stock (£8,000) to arrive at the correct cost of goods sold. This will reduce the gross profit figure.
Impact on Financial Statements: This adjustment affects both the Trading Account (reducing gross profit) and the Statement of Profit and Loss (reducing profit before tax).