A sole trader's net assets were £62,000 at the start of the year and £71,500 at the end. During the year the owner introduced additional capital of £5,000 and took drawings of £18,300. What was the profit for the year?

Correct answer: A) £22,800

Explanation

Closing net assets = opening net assets + capital introduced + profit - drawings. So profit = £71,500 - £62,000 - £5,000 + £18,300 = £22,800. The increase in net assets of £9,500 must be reduced by capital introduced, which is not profit, and increased by drawings, which reduced net assets but are not an expense.