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CA Foundation · Accounting · Final Accounts of Sole Proprietors

While preparing the final accounts of a sole proprietor from a trial balance, where should 'Carriage Inwards' normally be shown?

Carriage inwards is shown on the debit side of the Trading Account because it is a direct expense incurred to bring purchased goods to the business premises. It forms part of the cost of goods sold and must be deducted before arriving at gross profit.

  1. AOn the debit side of the Trading AccountCorrect
  2. BOn the debit side of the Profit and Loss Account
  3. COn the credit side of the Trading Account
  4. DAs a deduction from Sales in the Profit and Loss Account

Explanation

Carriage inwards is a cost of bringing purchased goods to the place of business, so it is a direct expense. Direct expenses are debited in the Trading Account to arrive at gross profit. Showing it in the Profit and Loss Account would overstate gross profit.

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