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How is depreciation typically recorded in the final accounts of a sole trader?

Practice Questions

Q1

How is depreciation typically recorded in the final accounts of a sole trader?

As an asset
As a liability
As an expense
As revenue

Questions & Step-by-Step Solutions

How is depreciation typically recorded in the final accounts of a sole trader?

Step 1: Understand that depreciation is the reduction in value of an asset over time.
Step 2: Know that a sole trader needs to keep track of their assets, like equipment or vehicles.
Step 3: Calculate the amount of depreciation for the period (usually a year).
Step 4: Record the depreciation amount as an expense in the profit and loss account.
Step 5: This expense will reduce the total profit shown in the final accounts.

Depreciation – Depreciation is the allocation of the cost of a tangible asset over its useful life, impacting profit and asset valuation.
Final Accounts – Final accounts include the income statement and balance sheet, summarizing a sole trader's financial performance and position.
Expense Recognition – Expenses, including depreciation, are recognized in the period they are incurred, affecting net profit.

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