SOLE TRADERS
BY: AARADHANA SRI
WHAT IS A SOLE TRADER?
Sole trader is the most common form of business organisation. It is a business
owned and operated by just one person - the owner is the sole proprietor. One of
the reasons it is such a common form of organisation is because there are so few
legal requirements to set it up.
Sole trader do not have a separate legal existence from their owner. This means
that the owner is personally liable for th debts of the business. This is known as
unlimited liability.
ADVANTAGES AND DISADVANTAGES OF SOLE TRADERS
ADVANTAGES DISADVANTAGES
Small businesses are easy to set up. Business growth is limited by the amount of
capital available from the sole trader.
Low initial start=up costs. The owner is only
required to find a small amount of capital. The sole trader often has to work for hours and
may find it difficult to take holidays or find cover
The sole trader is responsible for al business when they are unwell.
decisions.
The sole trader has no one to share the
The sole trader can choose their own working responsibility of running the business with.
conditions, hours and holidays to be taken.
The sole trader will be liable for any debts that
The sole trader does not need to share their the business cannot pay; there is unlimited
profit with any other owners. liability.
Sole traders use their income
statements and statements of financial
position to assess the business’s
financial performance. This may
include a review of their gross profit
and profit for the year.They may use
the details to support an application
for finance or to assess how much they
can take as drawings.
A financial statement showing a
business’s income and expenses for
an accounting period and the
INCOME resulting profit or loss.
A business prepares an income
STATEMENT statement for a specific period of
time. This is usually one year. The
income statement is prepared at the
end of the business’s financial year.
AN INCOME STATEMENT INCLUDES:
● A trading account which calculates the gross profit that a business has
made by buying and selling its goods during a particular period of time.
❖ Revenue
❖ Sales returns
❖ Purchases
❖ Purchases returns
❖ Opening and closing: the value of the inventory that he business is holding at
the start and end of the financial year.
❖ Carriage inwards: the delivery cost of transporting goods.
● Additional income
● Expenses
A statement of financial position is a
formal way of representing the
accounting equation.
STATEMENT OF
Asset = capital + liabilities
FINANCIAL A business’s statement of financial
POSITION position list all of the assets that are
owned by a business and all of the
liabilities that are owned by the
business.
A STATEMENT OF FINANCIAL POSITION INCLUDES:
● NON-CURRENT ASSETS: Resources that are acquired by a business and are
likely to be used for more than a year, like, premises and machinery.
● INTANGIBLE ASSETS: Assets of a business that do not have a physical
existence, like, copyrights and goodwill.
● CURRENT ASSETS: Resources of a business that are likely to be converted
into cash within one year, like, trade receivables and inventory.
● CURRENT LIABILITIES: The debts that are likely to be repaid within one year,
like, trade payables and bank overdraft.
● NON-CURRENT LIABILITIES: The debts that can be paid after a year, like,
mortgages and long-term bank loans.
● CAPITAL: The money that the owner has invested into the business.
THANK YOU!
