Glossary
Sole trader
A business owned and run by one person.
What it means
An unincorporated business owned by a single individual who is entitled to all profits and liable for all debts.
Example
A one-person bakery run by its owner is a sole trader.
Why it matters
The sole trader is the simplest form of business and the starting point for IGCSE financial statements.
In practice
A sole trader's records centre on one capital account and one drawings account. The owner and the business are one person in law, but the books keep them separate for accounting. Profit from the income statement is added to opening capital, and drawings are deducted, to give closing capital in the statement of financial position.
For example, opening capital of RM20,000 plus profit of RM8,000 less drawings of RM5,000 leaves closing capital of RM23,000. The owner keeps all the profit and bears all the losses personally.
Students often confuse a sole trader with a partnership. A sole trader has one owner and one capital account. A partnership has two or more owners, each with their own capital and current accounts, and the profits are shared between them. Being unincorporated, a sole trader also has unlimited liability, unlike the shareholders of a limited company.
If moving from sole trader to partnership and company accounts feels like a big jump, one of our teachers can take you through each step in turn. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 5.1 Sole traders (page 15); sub-topic 6.4 Interested parties (page 19).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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