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Sole trader

Page written by AI. Reviewed internally on April 24, 2024.

A sole trader is a type of business structure where an individual operates and owns a business independently. In a sole trader business, there is no legal distinction between the owner and the business entity itself. 

What is a sole trader?

One of the key characteristics of a sole trader business is that the owner has unlimited liability . This means that the owner is personally responsible for all debts, liabilities , and legal obligations of the business. In the event of business debts or legal issues, the owner’s personal assets may be used to cover these obligations .

The owner of a sole trader business is entitled to all the profits generated by the business. However, they are also personally responsible for any losses incurred. This contrasts with other business structures where profits and losses are shared among multiple owners or shareholders.

Sole traders have a high degree of flexibility and autonomy in managing their business. They have the freedom to make decisions without the need for approval from partners or shareholders.

Depending on the jurisdiction, there may be specific legal requirements and regulations that sole traders must adhere to. This can include business registration, licensing, and compliance with industry-specific regulations.

Example of a sole trader

John Smith decides to start a freelance graphic design business . He operates the business under his own name, “John Smith Design.” As a sole trader, John is the sole owner of the business and is personally responsible for all aspects of its operations.

• Business registration : John registers his business with the appropriate government authorities, obtaining any necessary licenses or permits required to operate as a sole trader in his jurisdiction.
• Business operations : John sets up his home office with the necessary equipment and software to provide graphic design services to clients.
• Client acquisition : John networks with potential clients, attends industry events, and promotes his services through online channels to generate business leads.
• Financial management : John manages his business finances, including invoicing clients, tracking income and expenses, and paying taxes as a self-employed individual.
• Legal and liability considerations : As a sole trader, John is personally liable for any debts or legal obligations incurred by his business.

In this example, John operates as a sole trader, managing his freelance graphic design business independently.

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INTERACTIVE VIDEO

Let's dive further into the world of business ownership, with a specific focus on the most popular form of ownership: operating as a sole trader. In this interactive video, we will explore the advantages and disadvantages of this ownership structure, and how it affects the day-to-day operations of a business.

• DETAILED EXPLAINER VIDEO
• 10 QUESTION MULTIPLE-CHOICE QUIZ
• 6 INTERACTIVE ACTIVITIES
• INTERACTIVE CASE STUDY
• SUPPORTING STUDENT WORKSHEETS

CASE STUDY ANALYSIS ROCKET JACK DESIGNS

The interactive case study explores the success story of RocketJack Design, a small sole trader business that sells modern art prints, personalised posters and greeting cards. Simon West, the founder and owner of the business, started selling his artwork via Etsy and has now expanded to his own website and online store. The business has been growing in success and has recently been featured in magazines such as Style at Home.

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Sole trader

On this page

Key elements of a sole trader

Hiring people, superannuation.

A sole trader is the simplest form of business structure and is relatively easy and inexpensive to set up.

As a sole trader you’re legally responsible for all aspects of your business including any debts and losses and day-to-day business decisions.

If you’re looking at starting your business as a sole trader, consider the following key elements. A sole trader business structure:

• is simple to set up and operate
• gives you full control of your assets and business decisions
• requires fewer reporting requirements and is generally a low-cost structure
• allows you to use your individual tax file number (TFN) to lodge tax returns
• doesn't require a separate business bank account, although this is recommended to make it easier to keep track of your business income and expenses
• requires you to keep financial records for at least 5 years
• has unlimited liability and all your personal assets are at risk if things go wrong
• doesn’t allow you to split business profits or losses made with family members
• makes you personally liable to pay tax on all the income derived

You can employ people to help run your business under the sole trader business structure.

If you do decide to take on any employees there are obligations you must comply with such as workers' compensation insurance and superannuation contributions .

Use our Hiring checklist to help you employ staff.

You can choose whether you pay super to yourself. You don’t have to make super contributions to a super fund for yourself, however it is a good idea. You may want to consider super as a way of saving for your retirement.

Learn more about superannuation.

Find out the difference between a sole trader and a company., learn more about your taxation obligations., was this page helpful, thanks for sharing your feedback with us..

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Limited company vs sole trader: what’s best for my business .

There’s so much to think about when starting a business that your time and headspace is at a premium.

One of the first decisions to make is whether to operate your business as a sole trader or as a limited company. If you do nothing and get straight to work, then you will be a sole trader and you’ll typically refer to yourself as self employed. That can seem quite appealing amongst everything else you have to do.

However, considering the benefits of setting up a limited company versus operating as a sole trader at the outset is always time well spent and will save you time and money in the future, give you comfort in terms of risk and set you up for growth going forward.

How a limited company helps when you come to sell your business

What does it mean to be a sole trader.

If you start a business on your own without any other formality then you are a sole trader. 

This means that you, the self-employed business owner, and the business are one legal entity. The assets of the business are your assets and the debts of the business are your debts. If something goes wrong, then you, as business owner, are responsible. If that something involves payment of a debt or someone bringing a claim against the business then your personal assets, such as your savings, your house or your car are on the line to settle those debts and/or claims.  

Why would I set up as a sole trader?

At first glance, setting up as a sole trader feels simple. 

• It does not need any additional paperwork initially or annually;
• Business details, including your income, are kept private;
• The business is absolutely yours to control;
• If the business makes a profit, then so do you.  That is your income. 
• In terms of taxation, there is no separate corporation tax to understand, just income tax.
• If you are the only person in the business, then you do not have to set yourself up as an employee and your business as an employer.

What are the common misconceptions about the benefits of operating as a sole trader? 

There are several areas where there is a belief that it is easier to operate as a sole trader rather than as a limited company, when there is actually no difference between the two. With these as context, the additional paperwork of administering a limited company is actually very small.

What are the major risks of operating as a sole trader?

There are two major risks to operating as a sole trader:

What is a limited company?

A limited company is created by a process known as ‘incorporation’, which requires certain forms to be completed and submitted to a central Registry, known as Companies House. 

You become an owner in the company through taking ‘shares’ in it. You will also likely be a director, who makes the decisions on behalf of the company.

Once incorporated, the company has its own legal existence, distinct from you as a shareholder. This means that the company:

• pays its own tax, separate to your own personal taxation;
• contracts in its own right, including with customers and employees;
• can admit other ‘owners’ through those people becoming shareholders; and
• has one or more directors who make decisions on behalf of the company.

How long does it take and cost to set up a limited company?

You can set up a limited company within a few hours and at a very small cost – tens of pounds. See our guide to  how to set up a new company.

Does setting up a limited company mean that you pay more tax?

It is generally more tax efficient to operate as a limited company rather than as a sole trader.

Whilst the company pays its own tax, corporation tax bands are often lower than income tax bands.

As a sole trader you are taxed on the profits of the business, regardless of the amount of money you actually make, need or spend.

With a company, your own personal tax is dealt with separately and therefore if you do not draw money from the company, either in terms of a salary or through dividends, then you do not pay tax personally and the company retains those profits going forward. In addition, companies generally qualify for a larger range of allowances and tax deductible expenses. It is always worth speaking to an accountant to understand what this will mean in your own personal circumstances. You may be able to structure things such as company cars and other benefits through a company with your accountants guidance.

What about your personal assets?  How does a limited company structure help?

As the limited company is a separate legal entity, then any claim against your business is brought against the company and not against you, as a shareholder, personally unless the claimant can argue some sort of fraudulent or similar activity on your part. 

Your personal liability is limited by the amount of your investment in shares in the company and/or the amount that you have agreed to pay for your shares (which could be as little as say £1).  Beyond that and so long as all of your actions in respect of the company (as shareholder or director) are legal and ‘above board’, you have no responsibility for the liabilities incurred by the company and your personal assets are safe.

How a limited company helps you in attracting customers and suppliers

Customers and suppliers often attach greater credibility to a limited company.  In fact, some companies may have a policy of only contracting with limited companies. Reasons for this include:

• the transparency of the information available at Companies House, including trading history and accounts and details of shareholders and directors; and
• a sense of permanence in that a limited company will continue to exist even if one of the shareholders leaves for any reason or dies.

How a limited company helps you in attracting investment

For similar reasons, limited companies find it easier to attract loans, investment and business partners.

Investors and new business partners can invest or provide funding by taking shares in the company and becoming shareholders themselves, secure in the knowledge that their liability is limited to that investment amount.  This is not an option open to a sole trader and therefore severely limits funding and investment available going forward.

How a limited company helps you to attract employees

To attract, motivate and retain the talent needed to grow your business, you will have to offer an attractive employee remuneration package.

A limited company structure allows you to offer share ownership and/or share options as part of this package, which means that, financially, employees share in the success of the business – now and/or in the future. As a sole trader, you are unable to offer your employees an equivalent to share ownership.

If your ultimate aim is to grow and then sell your business then a limited company structure is the easiest route to allow you to do this.  In simple terms, when the time is right, you just sell your shares in the company.

As the company is a separate legal entity, then this sale typically does not disturb any of the company’s business contracts, whether with customers, suppliers and/or employees and also any of its liabilities, which stay with the company.   It is very much business as usual.

In contrast, being a sole trader creates problems when you attempt to sell your business, as all the contracts will be in your name, such as business premises, customers and employees. These will have to be transferred individually to the new buyer. Often this is not possible without the consent of the other party to the contract. If there are any liabilities associated with these contracts, then these will typically not pass with the ownership of the assets.

If you wish to simply sell your assets, then this may also not be possible as it strays into a complicated area of law as to whether the assets amount to a business being transferred as a going concern which has implications for both tax and for employees, who will automatically transfer to the buyer, whether that buyer wants those employees or not.

A limited company structure can be a very effective way to set up your company for future growth and investment, whilst limiting your liability and personal risk. If you would like to explore setting up a limited company further or any of the topics covered in this article please consult our corporate solicitors . Get in touch on 0800 689 1700 or email us at  [email protected] , or fill out the short form below with your enquiry.

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• How to approach a computational question for a sole trader
• Study resources
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• Examiner's approach

This article is relevant to those of you sitting the TX-MWI exam in June 2023 or December 2023 and is based on tax legislation as it applies to the tax year 2022–23.

Please note : Students should be aware that exams in June and December 2023 will be based on legislation passed by the previous September (ie September 2022) and so will incorporate the changes made to the tax rules in Malawi in April 2022 but not those changes which have been enacted in April 2023.

In the TX-MWI exam a candidate can improve their chance of a pass if they are able to complete computational questions for traders, partners and companies. Where candidates have not been able to attend a formal class there are certain key principles which should help to gain marks.

Where a question requires the adjustment of profits, the following will often be included as a note to the requirements:

• Which figure to use to start the computation.
• If you should list the items referred to in the scenario, indicating by the use of zero (0) any items which do not require adjustment.

This approach has been adopted so that candidates maximise available time, and to help them score full marks.

In this article we will look at an example of this type of question for a sole trader. The example shown is based on an extract from a published sample exam updated to reflect the legislation applicable for exams in June and December 2023.

This scenario relates to two requirements

The following information is available for John for the year to 31 March 2023.

John’s business John operates an unincorporated business as an agricultural merchant. As he is not involved in its operations daily, he employs a manager to run the business.

The results for the business for the year to 31 March 2023 are as follows:

• Fringe benefits relates to benefits provided to the manager
• Travel expenses include an amount of K800,000 relating to expenses incurred by John, when he was on holiday with his family
• Bad debts relate to amounts not recovered from sales of produce amounting to K100,000. The balance is a provision of 1 % of the debtor balances
• Rent costs are for rental of warehouse. The rental is at K1,800,000 per annum. The amount charged to the income statement is the amount which was paid during the period
• Transport costs include K275,000 being fuel costs for private use by John
• School fees are for John’s son
• Interest received includes K15,000 as accrued interest not received at the end of the year

Additional information (i) The business has the following assets which were bought during the year:

• Motor lorry at K4,500,000
• Two laptop computers at K 250,000 each and
• Furniture at K650,000

(ii) Provisional tax paid was K4,900,000

John’s employment John was employed as a chemist at a laboratory. His earnings for the year ending 31 March 2023 including housing allowance was K49,500,000.

PAYE of K14,625,000 was deducted and paid over to the tax authorities by John’s employer.

John’s rental income Net rental from house let out: K500,000 No withholding tax was deducted on this rental income

Requirement

(a) Calculate the taxable income of John’s agricultural merchant business for the year ending 31 March 2023.

Note: You should start your computation with the profit before tax of K18,271,600 and indicate by the use of zero (0) any items in the scenario relating to the business which do not require adjustment.             

• Firstly, it is most important that you take time to read and understand the question. Read the scenario and then read the requirement carefully to ensure that you understand exactly what you are being asked to do. Time taken to read the question is an important investment to help you provide a better answer and can be the key to obtaining a pass. Unfortunately, students can rush to answer questions before they have really understood the requirement. Ensure that you follow any instructions given in the requirement, so in this instance the requirement has an additional note asking you to start your computation with the profit before tax and then adjusting this to arrive at the taxable income. By asking you to use a zero for items which do not require adjustment it is important to comply with this to obtain the available marks.
• Start with the profit before tax (PBT) of K18,271,600. In order to obtain the marks for this question it is important that you don’t start with any other figure other than the one given as a starting point.
• This figure then has to be adjusted for all the items which have been deducted but are not allowable for tax and for any income which has been added but is not taxable.
• Every item in the scenario which does not need adjustment should be indicated with a zero '0' to demonstrate that you understand the tax treatment and have not simply ignored the item. In this example here, allowable expenses are shown as 'other expenses (all allowable)' so, as the tax treatment of these has already been given in the scenario there are no marks for entering this as a zero.
• Depreciation – this is not an allowable deduction for tax, being an accounting expense for capital items and so this will have to be added back. However, there may be capital allowances which can be deducted for tax purposes – see below.
• Fringe benefits tax (FBT) – this is a tax which is paid in respect of certain benefits which an employer is liable to pay in respect of benefits provided to employees. This is not a deductible cost for tax purposes and so must be added back in your computation.
• Travel expenses – travel expenses which are wholly, exclusively and necessarily for the purposes of the business are deductible but not John’s private expenses. Therefore, because K800,000 has been deducted in arriving at the PBT of K18,271,600 it must be added back (so increasing the profit figure) since it is not an allowable expense.
• Bad debts – deductions are allowed where debts have gone bad and have been written off or where there are debts which are doubtful and are specifically provided for but there is no deduction allowed for general provisions. Therefore, the amount of K175,500 (275,500 -100,000) must be added back.
• Rent and rates – in this scenario the rent and rates is an expense of the business, however only the amount actually paid has been deducted. The amount which is allowable for tax purposes is the whole amount relevant for the accounting period (the amount which should be accrued in the financial statements). This would be K1,800,000. Therefore, the extra amount of K250,000 (1,800,000 less 1,550,000) will be deducted.
• Transport costs include some of John’s private expenses and therefore they do not meet the 'wholly, exclusively and necessarily' rule and must be added back in the computation (since that amount has already been deducted in arriving at the PBT and it is not an allowable cost).
• School fees – likewise these costs have been deducted but represent a private expense (not wholly, exclusively and necessarily for the business) and so must be added back in full.
• Drawings by John – John will be assessable to tax on the adjusted profits of the business. The drawings are simply a way in which John has extracted these profits so, in order to establish the correct amount of the business’s taxable profits, these too need to be added back in full.
• Bank interest – this is income of the business and is assessable on John. The amount to be assessed is the gross amount which is receivable for the accounting period (ie the accrued amount not the amount actually received). Therefore, this is correctly included in the PBT and does not need to be added back. However, the amount received is shown gross and in fact John will have suffered withholding tax of 20% on the amount actually received of K30,000 (45,000 – 15,000). So, the withholding tax will be deducted from the tax payable by John (which is part of requirement (b)).
• Capital allowances – as noted above, capital expenditure (such as depreciation) is not allowable for tax; instead capital allowances are given at a prescribed rate depending on the nature of the expenditure. The annual allowance rates are given in the tax tables available in the exam (see below). In this scenario a lorry, laptop computer and furniture have been purchased for the business and therefore capital allowances should be calculated on these. These assets are eligible for both initial and annual allowances; the annual allowance rates are given in the tax tables in the exam but you are expected to know the rates available to the type of asset as an initial allowance. The capital allowances are then deducted in the computation.
• We now have the tax adjusted trading profit ie the taxable income of John’s agricultural business as per the requirement.
• The detailed answer to requirement (a) is shown below.

Now let’s look at requirement (b)

(b) Calculate the tax payable by John for the year ended 31 March 2023.       

The tax payable by John will be on his total income. This will include the income from his agricultural merchant business already calculated at part (a), note that candidates will be given ½ mark for their own figure from part (a) even if it was not the correct amount. To this will be added John’s employment income and his rental income.

The rates at which this will be taxed must be calculated and these are given to you in the exam. See this article outlining how these tax tables can be used. 

From that figure of tax due, the tax already paid (the provisional tax given in the scenario) and the PAYE deducted, and the tax already suffered (the withholding tax on the bank interest) will be deducted to give the tax which will be payable by John.

The detailed answer is shown below.

Written by a member of the TX-MWI examining team

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Sole trader case study

Watch this video to understand the registration and reporting obligations of this sole trader structured business, Solid Sista Mechanics.

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The Situations of Sole Proprietorship, E-Commerce Entrepreneurs and Trends in Their E-commerce: A Case Study in Thailand

• October 2014
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What Is A Sole Trader?

After working for many years under a famous designer of bridal garments, Ashmita wanted to branch out on her own….

After working for many years under a famous designer of bridal garments, Ashmita wanted to branch out on her own. She knew there was a gap in the wedding industry that she could fill with her skills—that of a bespoke embroidery and restoration service for vintage wedding sarees and lehengas. After resigning from her position at the designer label, she spent the greater part of a year learning how to start a business . Once she was ready, Ashmita became a sole trader . She founded her own venture, timing it to coincide with the second half of the year, when India starts gearing up for the wedding season. 

Ashmita quickly realized that as the owner of a fledgling sole trader business , she’d initially have to do a lot of the work by herself, be it sourcing fabrics, keeping track of all costs, handling marketing, supply and the brand’s social media, or arranging photographs of brides wearing her creations at their weddings. But Ashmita was up to the challenge; she consulted professionals and allocated more resources towards the core elements of her business such as fabric sourcing, website design and online advertising. By paying close attention to the fundamental needs of her venture, Ashmita not only managed to hone her own creative skills but also expanded the business, employed a talented team and flourished as a leader . 

As a sole trader , Asmita was able to fulfill her entrepreneurial dream. Indeed, most enterprising young people who’ve ever asked the question, “ What is a sole trader business ?” can, with guidance, do what Ashmita did. Let’s explore the subject a little bit more.

What Is A Sole Trader?  

Advantages of being a sole trader, disadvantages of being a sole trader, what is a sole trader .

But before we go any further, it’s important to first understand what a sole trader is and then examine the definition of sole trade . So what is a sole trader business? Simply put, a sole trader or a sole proprietor is a self-employed entrepreneur who exclusively owns and runs their own venture. In other words, the sole trader will be entitled to all of the business’s assets and profits after taxation. However, the liability of a sole trader is also unlimited; they’ll have to bear all losses as well. A sole trading business, as the sole traders definition points out, is an organization with a single individual taking care of all business activities. The legal identity of this venture or sole trader business isn’t separate from the owner; this is why many say that an individual who is a sole trader is the business.

To make the definition of sole trade clearer, it must be remembered that such a business isn’t financially difficult to set up. But the legal responsibility of every aspect of the business will lie with the sole trader . Such an individual calls all the shots about the inception and the running of the venture and has the freedom to hire employees as and when required. What’s more, the business model for a sole trading concern is relatively simpler and more versatile. In this regard, individuals who are considering sole proprietorship must also reflect on the nature of the commercial activities they wish to carry out. This will determine whether they go forward as entrepreneurs or businessmen/businesswomen .

Now that we’ve covered the definition of sole traders and also answered the question, “ What is a sole trading concern ?” let’s look at the various ways in which being a sole trader may benefit entrepreneurs or hinder them.

Sole proprietorship is accompanied by risks, but it also has several perks, making it a preferred model for many small business owners. Let’s take a look at a few of these advantages. 

1. Complete Control 

The biggest perk of a sole proprietorship is the freedom to be the only decision-maker about the direction in which the business will go. The prospect of being one’s own boss is among the most significant reasons for people leaving salaried jobs to start their own ventures. Moreover, a sole trader has greater decision-making freedom than someone in, say, a partnership structure, which necessitates joint decision-making most of the time.

2. Easy To Establish 

A sole trading concern is the easiest and relatively inexpensive business structure to put in place. The expenditure is minimal; legal expenses mostly extend to getting the required permits and licenses. This factor makes sole proprietorship attractive to startup owners and those who run home-based enterprises. 

3. Keep All Profits 

A major benefit of being a sole trader is being able to keep all the profits after taxes have been paid. This wouldn’t have been possible in a partnership structure or in a limited company, where the profits of the business would have to be shared with stakeholders and investors.

4. Flexibility

During taxation, a sole trader who incurs financial losses in the early stages can deduct the losses against other means of income. This facet makes sole proprietorship a preferred route for people who intend to make a gradual switch from being salaried professionals to self-employed individuals. Moreover, sole proprietorship also allows one to expand the business over time if revenue generation increases. In such a scenario, turning the venture into a limited company might make it more tax-efficient, and the process won’t be riddled with complications. 

5. The Next Step Can Be Incorporation

To illustrate this point, let’s take the case of the virtual shopping site, eBay. Before it became eBay, it was a sole proprietorship called Auction Web and belonged to Pierre Omidyar. The company had already sold over a million items and hired several employees before its name was changed to eBay in the late 1990s, after which the business was incorporated. eBay might never have become what it did if Omidyar hadn’t first started it as a sole trader . Entrepreneurs regularly go the sole proprietorship route as a way to move on to starting a limited liability company.

Having outlined all the advantages, it’s important to remember that the drawbacks of being a sole trader must also be taken into account. Let’s dive into them. 

Even though sole proprietorship holds out several benefits for young entrepreneurs, they need to weigh their options carefully as the disadvantages are significant as well. What are some of them?

1. Unlimited Personal Liability

There’s no way around this. The liability of a sole trader is unlimited. Given that sole proprietorship doesn’t hold out a legal distinction between the business and its owner, the latter will be held personally and fully liable for the organization’s debts. Thus, if the business incurs steep losses or if litigation is filed against the sole trader for damages caused by accident or owing to negligence while carrying out business activities, their personal assets will be at risk.

2. Not Considered Legitimate Enough

Another problem is that sole proprietorships are oftentimes not viewed through the same lens of legitimacy or considered as professional as a partnership company or a limited company. As a result, several corporations, consultant bodies and government organizations are reluctant to do business with sole traders. Another reason for this reluctance is that taxation bodies often tend to regard sole proprietors working with larger organizations as employees instead of independent contractors.

3. Getting Funding Is Difficult

Sole proprietorship severely limits investor opportunity, as it’s exclusively owned. This inability to sell a stake in the organization makes it tough to raise capital. Investors and banks will think twice before injecting money into a sole proprietorship owing to their skepticism about repayment in case the venture fails.

4. Tough To Sell

The nature of a sole trading concern makes it difficult for the owner to sell. Given that there is no separation between the business’s assets and those of the owner, getting a clear valuation of the business becomes tricky. Moreover, customer loyalty in the case of a sole proprietorship usually tends to be for the original sole trader . This sometimes tends to make sole proprietorships an unattractive prospect for buyers. One way to tackle a problem like this is to develop the skills to make impactful sales .

5. It Can Get Lonely

While sole traders do have employees–sometimes several–and must lead with empathy , as the business owners they’ll still be taking all the main decisions. As a result, the business owner is the only one with accountability. Such a position is a lonely one to be in; there’s no one to brainstorm or share ideas with, and one bad move could spell doom for the organization. While doing business with other people does necessitate sharing power and control, the promise of a collaborative work environment of equals, where ideas and accountability are shared, might be worth the sacrifice. 

Having considered all these factors, sole proprietorship is a significant step to take in an entrepreneurial journey. Deciding whether or not to become a sole trader will require a lot of thought and reflection on the part of entrepreneurs. Harappa’s Big-Picture Thinking pathway is designed to help learners make that choice. With the help of Thrive Skills such as Instinctive Adaptability and Critical Thinking, ambitious professionals will be able to rapidly move between ideas and easily detect patterns, trends and connections. Under the guidance of an outstanding faculty who teach techniques like The Bi-Focal Approach and The Problem-Solver’s Mindset, learners will be taught to think holistically, consider multiple perspectives, balance thought and action and respond easily to change. Sign up for the Big-Picture Thinking pathway and develop a holistic approach to finding solutions!

Final Accounts of Sole Proprietorship: Practical Problem and Solution

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on April 25, 2023

Fact Checked

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Table of Contents

Practical problem.

Using the balances extracted from the books of John Enterprises (run by Mr. John), prepare the final accounts (i.e., manufacturing trading and profit and loss account) for the year ended 31 March 2020. Also, prepare a balance sheet as on 31 March 2020.

Stock on 31 March 2020 is as follows:

The following liabilities are to be provided:

Provide depreciation @ 10% on plant and 5% on furniture. Increase bad debts provision by $1,000.

Five-sixths of rent and rates, lighting and heating, and insurance are to be allocated to the factory and one-sixth to the office.

In the Books of John Enterprises Manufacturing, Trading and Profit and Loss Account For the year ended 31 March 2020

Balance Sheet as on March 31, 2020

Do you want to further test your knowledge about final accounts? We have prepared more quizzes for you.

• Final Accounts MCQs
• Company Final Accounts: Practical Problems and Solutions

Final Accounts of Sole Proprietorship: Practical Problem and Solution FAQs

What are the final accounts of a sole trader.

The final account of a sole trader is a financial report that shows the full details of their business's Cash Flows and stock during a particular period.

In which type of business do we prepare final accounts?

Final Accounts are prepared in sole proprietorship businesses.

Are the final accounts prepared by a sole trader similar to that of a partnership firm?

The Final Accounts of sole traders are similar to those prepared for Partnership firms except for the sale of goods.

Do sole traders need to prepare financial accounts?

Sole traders are required to prepare financial accounts, but not in detail. These will be bare figures showing the total of assets, liabilities, and capital introduced by the owner. Sole traders are also required to prepare a balance sheet.

What information do I need to prepare a final account?

In order to prepare a final account, you will need to gather the following information: - The balance sheet as of the end of the accounting period - The income statement for the accounting period - Any other relevant notes or disclosures

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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