If a sole trader's net profit is $20,000 and drawings are $5,000, what is the cl

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Question: If a sole trader\'s net profit is $20,000 and drawings are $5,000, what is the closing capital?

Options:

$15,000
$20,000
$25,000
$30,000

Correct Answer: $25,000

Solution:

Closing capital is calculated as net profit plus opening capital minus drawings. Assuming opening capital is $10,000, it would be $20,000 + $10,000 - $5,000 = $25,000.

If a sole trader's net profit is $20,000 and drawings are $5,000, what is the cl

Practice Questions

If a sole trader's net profit is $20,000 and drawings are $5,000, what is the closing capital?

$15,000
$20,000
$25,000
$30,000

Questions & Step-by-Step Solutions

If a sole trader's net profit is $20,000 and drawings are $5,000, what is the closing capital?

Step 1: Identify the net profit, which is given as $20,000.
Step 2: Identify the drawings, which are given as $5,000.
Step 3: Assume the opening capital, which is given as $10,000.
Step 4: Use the formula for closing capital: Closing Capital = Net Profit + Opening Capital - Drawings.
Step 5: Substitute the values into the formula: Closing Capital = $20,000 + $10,000 - $5,000.
Step 6: Calculate the result: $20,000 + $10,000 = $30,000; then $30,000 - $5,000 = $25,000.
Step 7: The closing capital is $25,000.

Net Profit – The amount of money a sole trader earns after all expenses have been deducted from total revenue.
Drawings – The amount of money taken out of the business by the owner for personal use.
Closing Capital – The total amount of capital available to the business at the end of a financial period, calculated as opening capital plus net profit minus drawings.
Opening Capital – The amount of capital the business starts with at the beginning of the financial period.

If a sole trader's net profit is $20,000 and drawings are $5,000, what is the cl

What’s inside this PDF?

If a sole trader's net profit is $20,000 and drawings are $5,000, what is the cl

Practice Questions

Questions & Step-by-Step Solutions

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