Summary
A sole trader is a business owned and operated by a single individual who has complete control over all business decisions and operations. Example: Sarah runs a local bakery called "Sarah's Sweet Treats."
- Unlimited Liability — The owner is personally responsible for all business debts and obligations. Example: If the bakery has debts of $50,000, Sarah must use her personal savings to pay them if the business cannot.
- Income Statement — A financial statement showing the profit or loss of a business over a specific period. Example: Revenue minus expenses equals profit for the year.
- Trading Business — A business that purchases goods from suppliers and resells them to customers at a higher price. Example: Clothing store, supermarket.
- Service Business — A business that provides services, expertise, or labor to customers for a fee. Example: Accountant, lawyer.
- Depreciation — The systematic allocation of a non-current asset's cost over its useful life. Example: A delivery van costing 6,000.
Exam Tips
Key Definitions to Remember
- Sole Trader
- Unlimited Liability
- Income Statement
- Trading Business
- Service Business
Common Confusions
- Mixing up trading and service businesses
- Forgetting to adjust for depreciation
Typical Exam Questions
- What is a sole trader? A business owned by one person with unlimited liability.
- How do you calculate cost of sales? Opening inventory + Purchases - Closing inventory.
- What happens when goods are taken by the owner for personal use? Decrease purchases and increase profit.
What Examiners Usually Test
- Understanding of sole trader characteristics
- Ability to prepare and interpret income statements
- Differences between trading and service businesses