Edexcel IGCSE Accounting: Financial statements of a sole trader (4AC1) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set covers section 4.1, Financial statements of a sole trader, from Topic 4 of the Pearson Edexcel International GCSE in Accounting (4AC1) specification, Issue 1, October 2016: preparing income statements to show gross profit and profit for the year, and statements of financial position to show assets, liabilities and equity. The specification gives no tier labels for these points. All businesses and figures are invented and in dollars.

Links: Edexcel IGCSE Accounting course hub, printable checklist, free diagnostics, the study guide and the revision notes.

Questions

1. State two differences between an income statement and a statement of financial position. [2]

2. A potter’s records for the year show: sales 73,600; sales returns 2,100; opening inventories 6,300; purchases 39,200; carriage inwards 850; purchases returns 1,400; closing inventories 5,700.

(a) Calculate cost of sales. [3] (b) Calculate gross profit. [2]

3. Copy the table and write the correct heading from the list for each item: cost of sales; expense in the income statement; current asset; current liability; non-current liability; deduction from equity. [6]

Item	Heading
Carriage inwards
Carriage outwards
Closing inventories
Bank overdraft
Loan repayable in four years
Drawings

4. Kamal’s capital at 1 January was 27,500. During the year he put in a further 3,000, made a profit of 11,260 and took drawings of 9,800.

(a) Calculate his capital at 31 December. [3] (b) State what happens to closing capital if drawings are larger than the profit for the year. [1]

5. Explain why drawings are not shown as an expense in the income statement. [3]

6. A draft income statement contains five entries, listed below. Identify the mistake in each and say where the item should go.

• (i) Purchase of a new freezer, 4,800, listed as an expense.
• (ii) Owner’s drawings, 6,000, listed as an expense.
• (iii) Carriage inwards, 380, listed as an expense.
• (iv) Closing inventories, 2,900, listed as an expense.
• (v) Repayment of 2,000 of a loan, listed as an expense. [5]

7. Sidra Naeem runs Loomhouse Rugs. For the year ended 31 July 2026 her records show: sales 96,400; sales returns 1,600; opening inventories 7,800; purchases 52,300; purchases returns 1,900; carriage inwards 900; closing inventories 8,200; discount received 410. Expenses are wages 17,500, rent 5,400, carriage outwards 1,260, advertising 2,150, general expenses 1,840, depreciation 3,000 and loan interest 450.

Prepare the income statement of Loomhouse Rugs for the year ended 31 July 2026, showing gross profit and profit for the year. [9]

8. Using your profit from question 7, prepare the statement of financial position of Loomhouse Rugs at 31 July 2026. Other balances: premises 70,000; fixtures at cost 15,000 with accumulated depreciation of 9,000 (after this year’s charge); inventories 8,200; trade receivables 6,300; bank 2,750; cash 300; trade payables 5,100; loan 7,500 (repayable in 2030). Capital at 1 August 2025 was 80,000 and drawings were 11,760. [9]

9. At the year end a trader’s assets total 48,300 and liabilities total 19,650. During the year the profit was 6,450 and drawings were 8,000.

(a) Calculate closing equity. [2] (b) Calculate the capital at the start of the year. [3]

10. Dar Electrics has these balances at its year end: non-current assets (carrying amount) 21,000; inventories 4,100; trade receivables 3,600; cash 90; bank overdraft 5,400; trade payables 6,200; loan repayable in six years 15,000.

(a) Calculate working capital. [2] (b) Calculate the owner’s equity at the year end. [2] (c) State two features of the statement of financial position that suggest the business may be at risk. [2]

Answers

1. Any two differences, one mark each:

• The income statement covers a period of time (such as a year) whereas the statement of financial position is at one date [1].
• The income statement shows revenue, expenses and profit; the statement of financial position shows assets, liabilities and equity [1].

Examiner insight: Two separate contrasts are needed for two marks; saying only that one is “for the year” and the other “at a date” is a single point.

2. (a) Opening inventories 6,300 + purchases 39,200 + carriage inwards 850 = 46,350 [1]; less purchases returns 1,400 = 44,950 [1]; less closing inventories 5,700 = 39,250 [1]. (b) Net revenue 73,600 - 2,100 = 71,500 [1]; gross profit 71,500 - 39,250 = 32,250 [1].

Examiner insight: Gross profit is taken from net revenue, not from the sales figure before returns, and writing the subtotals down lets a slip in one line be seen separately from the rest.

3. Carriage inwards: cost of sales [1]. Carriage outwards: expense in the income statement [1]. Closing inventories: current asset [1]. Bank overdraft: current liability [1]. Loan repayable in four years: non-current liability [1]. Drawings: deduction from equity [1].

Examiner insight: Inwards and outwards carriage are a favourite pair; the word tells you which side of the business the delivery is on.

4. (a) Opening 27,500 + capital introduced 3,000 + profit 11,260 [1] - drawings 9,800 [1] = 31,960 [1]. (b) Closing capital falls (equity is reduced) [1].

Examiner insight: A common slip is subtracting the profit; profit increases capital and drawings reduce it.

5. Drawings are money or goods the owner takes for personal use [1]. They are not a cost of running the business or earning revenue [1], so they do not reduce profit; instead they are deducted from the owner’s capital in the statement of financial position [1].

Examiner insight: Strong answers name the effect on equity as well as saying “it is not an expense”.

6. (i) A freezer is capital expenditure, so it is a non-current asset in the statement of financial position [1]. (ii) Drawings are deducted from equity, not shown as an expense [1]. (iii) Carriage inwards belongs in cost of sales [1]. (iv) Closing inventories are deducted in cost of sales and shown as a current asset [1]. (v) A loan repayment reduces the liability; only the interest is an expense [1].

Examiner insight: Each item needs both the mistake and the correct place; naming only the correct place may not show you saw the error.

7.

Loomhouse Rugs
Income statement for the year ended 31 July 2026

Revenue                                    96,400
Less sales returns                          1,600
Net revenue                                94,800  [1]
Opening inventories              7,800
Add purchases                   52,300
Add carriage inwards               900
Less purchases returns           1,900
                                59,100  [1]
Less closing inventories         8,200
Cost of sales                              50,900  [1]
Gross profit                               43,900  [1]
Add discount received                         410  [1]
                                           44,310
Less expenses
  Wages                         17,500
  Rent                           5,400
  Carriage outwards              1,260
  Advertising                    2,150
  General expenses               1,840
  Depreciation                   3,000
  Loan interest                    450  [1]
Total expenses                             31,600  [1]
Profit for the year                        12,710  [1]

Correct title, business name and period [1].

Examiner insight: Show each subtotal. The business name, statement title and “for the year ended” wording are part of the presentation and are easy to omit.

8.

Loomhouse Rugs
Statement of financial position at 31 July 2026

Non-current assets      Cost   Acc. dep.   Carrying amount
Premises              70,000                   70,000
Fixtures              15,000     9,000          6,000  [1]
                                               76,000  [1]
Current assets
Inventories            8,200
Trade receivables      6,300
Bank                   2,750
Cash                     300
                                 17,550  [1]
Current liabilities
Trade payables                    5,100
Working capital                  12,450  [1]
Non-current liabilities
Loan (repayable 2030)             7,500  [1]
Net assets                       80,950  [1]

Equity
Capital at 1 August 2025         80,000
Add profit for the year          12,710
                                 92,710  [1]
Less drawings                    11,760
Capital at 31 July 2026          80,950  [1]

Correct title, name and date [1]. Net assets equal closing capital, which confirms the work.

Examiner insight: A statement of financial position that does not balance is a signal to re-check before leaving the question; the net assets and equity totals should match.

9. (a) Equity = assets - liabilities [1]; 48,300 - 19,650 = 28,650 [1]. (b) Closing capital = opening capital + profit - drawings, so opening = closing - profit + drawings [1]; 28,650 - 6,450 + 8,000 [1] = 30,200 [1].

Examiner insight: Rearranging the equity roll-forward correctly is the skill being tested; show the equation before the figures.

10. (a) Current assets 4,100 + 3,600 + 90 = 7,790 [1]; current liabilities 5,400 + 6,200 = 11,600, so working capital is (3,810), a negative figure [1]. (b) Net assets = 21,000 + (-3,810) - 15,000 [1] = 2,190, which equals equity [1]. (c) Working capital is negative, because current liabilities exceed current assets [1]; the business has a bank overdraft and very little cash [1]. (Other valid points, such as equity being small compared with the loan, also earn credit; two points are needed.)

Examiner insight: Part (c) needs figures from the statement as evidence; a general comment such as “the business is doing badly” is not tied to the numbers.

Where marks are usually lost

• Writing closing inventories into cost of sales as an addition instead of a deduction.
• Starting gross profit from sales instead of net revenue after sales returns.
• Putting carriage inwards among the expenses.
• Showing drawings, a freezer purchase or a loan repayment in the income statement.
• Forgetting accumulated depreciation, so the carrying amount is wrong.
• Mixing up the order of current assets, or placing a bank overdraft in assets.
• Adding a loss to capital or taking drawings off the wrong line.
• Leaving out the business name, statement title or the date wording.
• Giving a general comment about risk without quoting a figure.

Next steps

• Work through the revision notes and repeat the layouts from memory.
• Re-read the study guide for the two full worked examples.
• Check the course hub and the printable checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class: /trial/.

Frequently asked questions

Why are drawings not shown in the income statement? Drawings are the owner taking money or goods for personal use, not a business expense, so they never appear in the income statement. They are deducted from equity in the statement of financial position.

Is a loan repayment an expense? No. A loan repayment reduces the liability; only the interest on the loan is an expense in the income statement. Showing loan repayments or the purchase of equipment as expenses is a common error.

What headings do sole trader financial statements need? Each statement needs the business name, the statement title and the date wording: “for the year ended” on the income statement and “at” on the statement of financial position. Leaving these out can lose presentation marks in Edexcel IGCSE Accounting (4AC1).

How do you comment on a sole trader’s financial position? Quote figures from the statements to support the comment, for example a negative working capital figure. A general remark about risk without a figure earns little credit.

Official syllabus

Pearson Edexcel International GCSE in Accounting (4AC1) specification, Issue 1, October 2016, published by Pearson Education Limited – Topic 4 The preparation of financial statements, section 4.1 Financial statements of a sole trader, points (a) and (b).