Where is carriage outwards (the cost of delivering goods to customers) shown in a sole trader's financial statements?
Answer and explanation
Correct answer: C. As a distribution expense in the statement of profit or loss, below gross profit
- Step 1: Carriage inwards is a cost of getting inventory to its present location and condition, so it is in cost of sales.
- Step 2: Carriage outwards is a cost of selling, so it is an operating expense.
Answer
As a distribution expense in the statement of profit or loss, below gross profit.
Why not the others: Putting it in cost of sales would confuse it with carriage inwards. Delivery to customers happens after inventory is sold, so it does not add to inventory cost. It is an expense, not a reduction in the price customers pay.
Practise more Preparing financial statements.
Free questions with an explanation for every one, and full timed ICAEW ACA Certificate Level mock tests.
More Preparing financial statements questions
- A sole trader has the following for the year: sales £180,000, sales returns £4,000, opening inventory £12,000, purchases £96,000, purchases…
- Using the gross profit of £84,000, a sole trader's other items are: wages £31,000, rent £12,000, depreciation £5,400, irrecoverable debts £9…
- A sole trader began the year with capital of £50,000, made a net profit of £35,900, took drawings of £18,000 and introduced a further £5,000…
- At the year end a business has total assets of £120,000 and total liabilities of £45,000. What is the owner's capital?
- A sole trader's balances at the year end are: freehold property £180,000, vehicles at carrying amount £24,000, inventory £18,500, trade rece…
- A business has a bank loan of £120,000 repayable in four equal annual instalments, with the first due within the next 12 months. How is the…