Income Statement Components for Sole Traders Steps:

• Identify the income statement as reporting revenues, expenses, and net profit for a period.
• Recall that sole traders record business income and expenses, but not personal items or capital adjustments.
• Assume item 1 is a business revenue/expense (e.g., sales or cost of goods), item 2 is personal (e.g., owner's drawings), and item 3 is balance sheet-related (e.g., capital).
• Determine only qualifying business items go in the income statement.

Why C is correct:

• Sole traders' income statements include only business revenues and expenses (item 1), per accounting standards separating business from personal finances.

Why the others are wrong:

• A includes item 2, which is typically personal and not in the income statement.
• B includes item 3, often a balance sheet item like assets, not profit-related.
• D excludes item 1 but includes non-income statement items 2 and 3.

Not enough information on exact items 1-3 for full precision. Final answer: C