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What is the primary purpose of preparing final accounts for a sole trader?

Practice Questions

Q1
What is the primary purpose of preparing final accounts for a sole trader?
  1. To calculate the tax liability
  2. To assess the financial position of the business
  3. To determine the amount of inventory
  4. To prepare for an audit

Questions & Step-by-Step Solutions

What is the primary purpose of preparing final accounts for a sole trader?
  • Step 1: Understand that final accounts are financial statements prepared at the end of a period.
  • Step 2: Recognize that these accounts show how much money the business made and spent.
  • Step 3: Identify that the main goal is to see if the business is making a profit or a loss.
  • Step 4: Realize that final accounts help the sole trader understand their financial position.
  • Step 5: Conclude that knowing the financial position helps in making better business decisions.
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