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

Ramesh started the year with capital of ₹4,00,000. During the year he introduced ₹50,000 more capital, withdrew ₹60,000 for personal use and earned a net profit of ₹1,20,000. What closing capital appears in the balance sheet?

Closing capital is ₹5,10,000. Start with opening capital of ₹4,00,000, add fresh capital of ₹50,000 and net profit of ₹1,20,000, then deduct drawings of ₹60,000. Drawings reduce the proprietor's capital, so they must be subtracted.

  1. A₹5,10,000Correct
  2. B₹5,70,000
  3. C₹4,70,000
  4. D₹6,30,000

Explanation

Closing capital = 4,00,000 + 50,000 + 1,20,000 − 60,000 = ₹5,10,000. Option ₹5,70,000 results from ignoring drawings' deduction, while ₹4,70,000 results from deducting drawings and ignoring added capital incorrectly, and ₹6,30,000 adds drawings.

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