The straight-line method calculates depreciation by taking the cost of the asset minus its salvage value and dividing it by its useful life.

Under the FIFO (First In, First Out) method, closing inventory is valued based on the most recent inventory costs.

The closing balance of the capital account is calculated as net profit minus drawings: $50,000 - $10,000 = $40,000.

An overstatement of closing inventory leads to an overstatement of net income because it reduces the cost of goods sold.

Overstating inventory leads to an understatement of cost of goods sold, thus increasing net income.

The correct entry is to debit Cash and credit the Capital Account to reflect the increase in cash from the owner's contribution.

The correct entry is to debit Cash (increasing assets) and credit Capital Account (increasing owner's equity).

The correct entry is to debit Expenses (increasing expenses) and credit Accounts Payable (increasing liabilities).

The correct entry is to debit Expense and credit Accounts Payable to recognize expenses incurred but not yet paid.

The correct entry is to debit Inventory and credit Accounts Payable to reflect the purchase of inventory on credit.

Final accounts are prepared to assess the financial position and performance of the sole trader over a specific period.

Revenue accounts are closed to the income summary at year-end to determine the net income for the period.