In this article, we prepare a cash flow statement for a sole trader’s business. Compared to a limited company, preparing a cash flow statement for a sole trader is significantly easier.

Example

John Bros. started a business on 1 January 2017 with cash of $250,000. They purchased furniture for cash amounting to $35,000. They submitted the following information on 31 December 2017:

  • Purchased merchandise for $85,000 of which $75,000 was paid during the year
  • Salaries amounting to $72,000 of which $6,000 was unpaid at the end of the year
  • Total sales of $245,000, including $35,000 receivables at year-end
  • Rent paid for shop amounting to $60,000
  • Commission received totaling $9,000

Required: Prepare a cash flow statement for John Bros. for 2017.

Solution

Example Statement of Cash Flows For a Sole Trader

Explanatory note on the use of brackets: In accounting, it is customary to show a figure in brackets if it is a negative figure (i.e., preceded by a minus sign).

This figure will be deducted from the other figures to arrive at the total of the column. Brackets used in this way appear frequently in cash flow statements.

True is a Certified Educator in Personal Finance (CEPF®), contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.