05 June 2015
Doubts in Final Accounts of Sole Proprietorship: 1. Why Net Profit is added to Capital in Liabilities side ? Is there no scope to show in other places like Reserves and surplus ? 2. Why Interest on Drawings is added to Drawings ? Being an expense, is it correct to show in Liabilities ? 3. Why Interest on Capital is added to Capital in Liabilities side being an Income ?
05 June 2015
1 For sole prop no reserves and surplus so the profit is added to capital. 2 Interest on drawings is not an allowed expense hence added to drawings. 3 It is not an income for the purpose of income tax computation hence added to capital.