Treatment of Closing Inventory and Net Loss in Sole Trader Accounts

Steps:

• Identify closing inventory as unsold goods at year-end, recorded as a current asset in the statement of financial position.
• Recognize net loss as excess of expenses over revenues, calculated in the income statement.
• Adjust owner's capital by debiting the net loss amount to reduce equity in the capital account.
• Confirm no impact on liabilities or direct income statement credits/debits for these items.

Why A is correct:

• Closing inventory is a current asset per accounting standards (IAS 2), shown in the statement of financial position; net loss debits the capital account to reflect reduced owner's equity.

Why the others are wrong:

• B: Closing inventory is not credited in the income statement; losses are not debited there but transferred to capital.
• C: Closing inventory is not debited as an expense in the income statement; losses do not credit capital.
• D: Closing inventory is an asset, not a liability; losses do not credit capital.

Final answer: A