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CA Foundation · Accounting · Final Accounts of Sole Proprietors

Which of the following is the correct treatment of drawings of a sole proprietor when the balance sheet is prepared?

Drawings are deducted from the proprietor's capital in the balance sheet. They represent withdrawal of the owner's investment for personal use, not an asset, an outside liability or a business expense, so they never appear in the Profit and Loss Account as a charge.

  1. ADeducted from capital on the liabilities sideCorrect
  2. BShown as a current asset
  3. CShown as a current liability
  4. DShown as an expense in the Profit and Loss Account

Explanation

Drawings reduce the proprietor's capital because they are withdrawals of the owner's investment. They are not an asset, a liability to outsiders, or a business expense, so they are deducted from capital in the balance sheet.

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