104 Accounting: Business Reporting for Decision Making
business entity’s funds for personal use, this will be shown as a reduction in cash and a distribution of
profits (reducing equity) — that is, not as an expense for the business entity.
Sole trader reports
The financial statements in illustrative example 3.5 have been prepared for the sole trader, Nicholas
Cash, owner of Advantage Tennis Coaching (ATC). The statement of profit or loss shows income less
expenses for Cash’s Advantage Tennis Coaching business and reports a profit of $16 370 in September
2016, the first month of operations. As you can see, the profit is reported on the balance sheet as an
addition to capital. The capital has been contributed by the owner of the business (N Cash) and the profit
(loss) shown belongs to the owner.
ILLUSTRATIVE EXAMPLE 3.5Financial statements for a sole trader
Advantage Tennis Coaching
Statement of profit or loss for one month ending 30 September 2016Income
Coaching fees $22 300
Expenses
Website development
Wages
Telephone
Rent
Electricity$ 2 000
2 200
280
1 000
450 5 930
Profit $16 370Advantage Tennis Coaching
Balance sheet as at 30 September 2016
Assets
Current assets
Cash
Accounts receivable$71 270
6 800 $78 070
Non-current assets
Office furniture
Office equipment3 200
6 500 9 700
Total assets $87 770
Liabilities
Current liabilities
Accounts payable 1 400
Non-current liabilities
Loan 50 000
Total liabilities 51 400
Net assets $36 370
Owner’s equity
Capital — N Cash
Profit20 000
16 370
Total equity $36 370