CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship
Which of the following items is debited to the Profit and Loss Account of a sole proprietor rather than to the Trading Account?
Discount allowed to customers is debited to the Profit and Loss Account because it is an indirect, financial expense of selling. Carriage inwards and freight on purchases are direct costs of goods and go to the Trading Account, while installation wages are capitalised to the asset.
- ACarriage inwards
- BWages for installing machinery
- CDiscount allowed to customersCorrect
- DFreight on purchases
Explanation
Discount allowed is an indirect expense relating to selling and is charged in the Profit and Loss Account. Carriage inwards and freight on purchases are direct costs taken to the Trading Account. Installation wages are capitalised into machinery.
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