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CA Foundation · Accounting · Final Accounts of Sole Proprietors

Which statement about the treatment of goods taken by the proprietor for personal use is correct in preparing the Trading Account?

Goods taken by the proprietor are recorded at cost by crediting Purchases and debiting Drawings. They are not a business expense and not a sale, so the Trading Account purchases figure is reduced by their cost.

  1. APurchases are credited with the cost of the goods and drawings are debitedCorrect
  2. BSales are credited with the selling price and drawings are debited
  3. CGoods are ignored as the proprietor and business are the same
  4. DThe cost is debited to the Profit and Loss Account as an expense

Explanation

Goods withdrawn by the owner are a drawing, not an expense. The cost is deducted from purchases (credited) and debited to Drawings account. This keeps the gross profit from being understated by goods not sold.

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