The following balances have been extracted from the ledger of a sole trader at the year end: Non-current assets £48,000 Inventory £6,200 Trade receivables £9,400 Bank overdraft £1,700 Trade payables £7,300 Revenue £96,500 Purchases £58,100 Expenses £21,900 Drawings £12,000 Loan £10,000 Capital ? Assuming the trial balance balances, what is the balance on the capital account?

Correct answer: C) £40,100

Explanation

Debit balances are assets, expenses, purchases and drawings: £48,000 + £6,200 + £9,400 + £58,100 + £21,900 + £12,000 = £155,600. Credit balances are the overdraft, payables, revenue and loan: £1,700 + £7,300 + £96,500 + £10,000 = £115,500. Capital is a credit balance, so capital = £155,600 - £115,500 = £40,100. Treating drawings as a credit gives £16,100 and treating the overdraft as a debit gives £43,500.