CA Foundation · Accounting · Final Accounts of Sole Proprietors
Which of the following is correctly shown as a deduction from capital in the balance sheet of a sole proprietor?
Drawings are deducted from capital, because they are withdrawals of the owner's investment for personal use. Outstanding salaries and bank overdraft are liabilities, while provision for doubtful debts is deducted from sundry debtors on the asset side, so those do not reduce capital.
- ADrawings made during the yearCorrect
- BOutstanding salaries
- CProvision for doubtful debts
- DBank overdraft
Explanation
Drawings reduce the proprietor's capital, so closing capital is opening capital plus profit less drawings. Outstanding salaries and bank overdraft are liabilities, and provision for doubtful debts is deducted from debtors, not capital.
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