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com
PRINCIPLES OF ACCOUNTING I

TOPIC EIGHT: FINAL ACCOUNTS OF THE SOLE PROPRIETOR

• A sole proprietor is an individual who owns and operates a business on their

own.
• This form of business ownership is the simplest and most common, particularly
for small businesses.
• A sole proprietor is a one man business and the business is not considered as a
separate legal entity from those who form it.
• The sole proprietor maintains the following financial statements.
(i) Trading, profit and loss account
(ii) Balance Sheet
Mrs. Smith Sole proprietorship
Trading, Profit and Loss account
for the year ended 31st Dec 2023

Kshs Kshs
Opening Stock x Sales x
Purchases x Less sales return (x)
Carriage in x Net sales x
Returns out (x)
Cost of goods available x
Less closing stock (x)
Cost of goods sold x
Gross profit c/d x
xx xx
Expenses Gross profit x
Rent x Add rent received x
Rates x Discount Received x
Salary & wages x Interest received x
Electricity x x
Motor vehicle expenses x
Stationery x
Insurance x

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Depreciation of – Equipments xx
- Machinery xx
- Buildings xx
- Furniture xx
- Motor vehicle xx
- Fixtures and fittings xx
Net Profit xx
Xx xx

Balance Sheet

Fixed Assets Cash Dep NBV

Shs Shs Shs
Capital x Land X - X
Net profit x Building/premises X (X) X
Drawings (x) X Plant/machineries X (X) X
Fixtures & fitting X (X) X
Long term Liabilities (LTL) Equipment X (X) X
Bank Loan x Motor vehicle X (X) X
Co-op Loan x xx Furniture X (X) X
Investment X - X
Current Liabilities XX XX XX
Creditors x Current Assets
Bills Payable x Closing stock X
Bank Overdraft x xx Debtors X
Less provision (X) X
Bills receivable X
Prepayment X
Cash in bank X
Cash at hand X XX
Total XX XX

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Example 1
The following is a trial balance of Mrs. Mashirina for the year ended 31st July 2024.

Sales Dr Cr
Shs Shs
Sales 200,000
Stock 40,000
Carriage in 10,000
Carriage out 3,000
Advertisement 5,000
Bad debt r/off 2,000
Stationery 15,000
Insurance 6,000

Electricity 17,000
Land 120,000
Bank loan 200,000
Co-op loan 100,000
Capital 200,000
Drawings 50,000
Machinery 130,000
Furniture 80,000
Equipment 70,000
Returns in 20,000
Returns out 30,000
Creditors 80,000
Debtors 32,000
Bills payable 40,000
Bills receivable 60,000
Cash in bank 70,000
Cash at hand 30,000
Purchases 100,000
Motor van 80,000
Discounts allowed 10,000
Discount received 30,000
Rent Received 20,000
Interest received 10,000
Bank overdraft 40,000
950,000 950,000

Closing stock Kshs. 30,000

Required:
Prepare (a) Trading profit and loss account (b) Balance sheet as at 31st July 2024 for
Mrs. Mashirina

Dr. Nyarombe Francis N. PhD. [email protected] 92

 [email protected]
Mrs Mashirina (Horizontal method)
Trading profit and loss account
For the year ended 31st July 2024

Shs Shs
Opening stock 40,000 Sales 200,000
Purchases 100,000 Less Sales return (20,000)
Carriages in 10,000 Net Sales 180,000
Returns out (30,000)
Cost of goods available 120,000
Closing stock (30,000)
Cost of goods sold 90,000
Gross profit c/d 90,000
180,000 180,000

Expenses
Discount allowed 10,000 Gross profit b/d 90,000
Add rent received 20,000
Electricity 17,000 Discount received 30,000
Advertising 5,000 Interest received 10,000
Bad debt w/off 2,000 150,000
Stationery 15,000
Insurance 6,000
Carriage out 3,000
58,000
Net Profit 92,000
150,000 150,000

Dr. Nyarombe Francis N. PhD. [email protected] 93

 [email protected]
Mrs. Mashirina (Horizontal method)
Balance sheet
As at 31st July 2024
Shs Shs
Fixed Assets
Capital 200,000 Land 120,000
Net profit 92,000 Building/Premise -
Drawings (50,000) Plant & Machinery 130,000
242,000 Fixtures & Fittings 70,000
Motor vehicle 80,000
L.T.L Furniture 80,000
Bank loan 200,000 480,000
Co-op loan 100,000 300,000 Current Assets
Closing stock 30,000
Debtors 32000
Current Liabilities Bills receivable 60,000
Creditors 80,000 Cash in bank 70,000
Bills payable 40,000 Cash at bank 30,000 222,000
Bank overdraft 40,000 160,000

702,000 702,000

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 [email protected]
Trade, Profit and loss account (Vertical method)
For the year ended 31st July 2024

Shs Shs Shs

Sales 200,000
Less sale returns (2,000)
Net sale 180,000
Less cost of goods sold
Opening stock 40,000
Purchases 100,000
Carriages 10,000
Returns out (30,000)
Closing stock (30,000) 50,000 (90,000)
Gross profit 90,000
Add discount received 30,000
Rent 20,000
Interest 10,000 60,000
150000
Less Expenses
Bad debt 2,000
Insurance 6,000
Rates 20,000
Stationery 5,000
Advertising 5,000
Sales Commission -
Electricity 2000
Discount allowed 1000
Rent -
Carriages out 3000 58,000
Net profit 92,000

Dr. Nyarombe Francis N. PhD. [email protected] 95

 [email protected]
Balance Sheet (Vertical Method)
As at 31st July 2024

Fixed Assets Cost (Kshs) Dep (Kshs) NBV(Kshs)

Land 120,000 120,000

Building/Premises - - -
Plant & Machineries 130,000 130,000
fixtures & Fittings - - -
Equipment 70,000 - 70,000
Motor vehicles 80,000 80,000
Furniture 80,000 - 80,000
480,000 480,000

Add we (CA-CL)
Current Assets
Closing stock 30,000
Debtors 32,000
Bills Receivable 60,000
Cash in Bank 70,000
Cash at Hand 30,000
222,000
Less current liability
Creditors 80,000
Bills payable 40,000
Bank overdraft 40,000 (160,000) 62,000
542,000

Capital Employed

Financed By
Capital 200,000
Net profit 92,000
Drawings (50,000)
Bank loans 200,000
Co-op loans 100,000 542,000

Dr. Nyarombe Francis N. PhD. [email protected] 96

 [email protected]
Example 2

The following is a trial balance of Nyamoringo sole trader for the year ended 31st
November, 2024.

Sales Dr Cr
Shs Shs
Sales 400,000
Stock 60,000
Carriage in 10,000
Carriage out 3,000
Advertisement 5,000
Bad debt r/off 2,000
Stationery 15,000
Insurance 6,000
Provision for bad debts 10,000

Electricity 17,000
Land 120,000
Bank loan 200,000
Co-op loan 100,000
Capital 200,000
Drawings 50,000
Machinery 130,000
Furniture 80,000
Equipment 70,000
Buildings 150,000
Returns in 20,000
Returns out 30,000
Creditors 80,000
Debtors 72,000
Bills payable 40,000
Bills receivable 60,000
Cash in bank 70,000
Cash at hand 30,000
Purchases 190,000
Motor van 80,000
Discounts allowed 10,000
Salaries and wages 20,000
Rates 10,000
Provision for depreciation:-
Buildings 40,000
Equipments 20,000
Machinery 20,000
Furniture 10,000
M/Vehicle 30,000
Discount received 30,000
Rent Received 20,000
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Interest received 10,000
Bank overdraft 40,000
1,280,000 1,280,000
Additional Information

a. Closing stock Kshs. 50,000

b. Provide provision for bad debts @ 20% debtors
c. Depreciate all fixed assets except land @10% cost
d. The following expenses were prepaid: salaries Kshs. 10,000, stationery Kshs.
5,000 and Rates Kshs. 5,000.
e. The following expenses were accrued: Insurance Kshs. 5000 and carriage out
Kshs. 10,000.

Required:
Prepare (a) Trading profit and loss account (b) Balance sheet as at 31st November
2024 for Mr. Nyamoringo.

Dr. Nyarombe Francis N. PhD. [email protected] 98