Doubts in final accounts of sole proprietorship

This query is : Resolved

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Guest (Querist)

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 ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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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.