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CSEET · Fundamentals of Accounting · Preparation of Final Accounts for Sole Proprietorship

At the year end, a sole proprietor's capital at the start was Rs 5,00,000. During the year he introduced further capital of Rs 50,000, withdrew Rs 80,000 for personal use, and the business earned a net profit of Rs 1,10,000. What is the closing capital shown in the Balance Sheet?

Closing capital is Rs 5,80,000. Start with opening capital of Rs 5,00,000, add fresh capital of Rs 50,000 and net profit of Rs 1,10,000, then deduct drawings of Rs 80,000. Drawings reduce the proprietor's capital, so they must be subtracted.

  1. ARs 5,80,000Correct
  2. BRs 5,60,000
  3. CRs 6,40,000
  4. DRs 5,00,000

Explanation

Closing capital = opening capital + additional capital + net profit - drawings = 5,00,000 + 50,000 + 1,10,000 - 80,000 = Rs 5,80,000. Rs 6,40,000 results from ignoring drawings, and Rs 5,60,000 from not adding the additional capital correctly with drawings treated as 1,00,000.

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