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What is the effect of depreciation on the final accounts of a sole trader?
What is the effect of depreciation on the final accounts of a sole trader?
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What is the effect of depreciation on the final accounts of a sole trader?
Increases net profit
Decreases net profit
Has no effect on net profit
Increases total assets
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Depreciation decreases net profit as it is recorded as an expense.
Questions & Step-by-step Solutions
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Q: What is the effect of depreciation on the final accounts of a sole trader?
Solution:
Depreciation decreases net profit as it is recorded as an expense.
Steps: 7
Show Steps
Step 1: Understand what depreciation is. Depreciation is the reduction in value of an asset over time.
Step 2: Know that a sole trader is a person who runs their own business.
Step 3: Recognize that when a sole trader buys an asset (like a machine or vehicle), it has value.
Step 4: Realize that as time passes, the asset loses value, which is called depreciation.
Step 5: Understand that depreciation is recorded as an expense in the sole trader's accounts.
Step 6: Know that expenses reduce the total profit of the business.
Step 7: Conclude that when depreciation is recorded, it decreases the net profit shown in the final accounts.
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