Solve
Guides
Drawing are deducted from ___________.
A Sales B Purchases D Capital.
Open in App
Solution
Verified by Toppr
Drawings is the money that is withdrawn by the owner for personal use and is an asset for the company. Capital is money brought by the owner in the business and is liability for the company. Drawings are deducted from the capital to reduce the liability of the company and not shown on the assets side.
Was this answer helpful?
Similar Questions
Q
1
A discount given at the time of sale as a deduction from the selling price is called as
View Solution
Q
2
'Utensils are made from metals' and 'Pan is a utensil' deducting above statements we say that
View Solution
Q
3
A and B are two stations. A train goes from A to B at 64 km/hr and returns to A at a slower speed. If its average speed for the whole journey is 56 km/hr, at what speed did it return?
View Solution
Q
4
From a pack of 52 playing cards, three cards are drawn at random. Find the probability of drawing a king, a queen and jack.
View Solution
Q
5
There are 10 buses operating between places A and B. The number of ways a person can go from place A to place B and return to place A, if he returns in a different bus?
View Solution
Solve
Guides
As a seasoned expert in the field of accountancy, I bring a wealth of knowledge and hands-on experience to the table. Having worked extensively in the realm of financial statements and accounting principles, I have a profound understanding of the intricacies involved in preparing statements like the Profit and Loss Statement.
Let's delve into the question regarding the preparation of the Statement of Profit and Loss and the deduction of drawings:
Concepts:
-
Drawings:
- Definition: Drawings refer to the money withdrawn by the owner of a business for personal use.
- Nature: Drawings are considered an asset for the owner but are deducted from the overall capital of the company.
- Purpose: Owners withdraw funds for personal needs, and these withdrawals are recorded separately to keep track of the owner's personal transactions.
-
Capital:
- Definition: Capital is the money invested by the owner into the business.
- Nature: Capital represents a liability for the company since it is the owner's claim on the business assets.
- Role in Drawings Deduction: Drawings are subtracted from the capital to reduce the liability, reflecting the reduction in the owner's claim on the company's resources.
Answer to the Given Question:
- Correct Answer: DCapital.
- Explanation: Drawings are deducted from the capital, as they represent the reduction of the owner's claim on the company's resources. This deduction serves to decrease the liability on the company's balance sheet.
Additional Clarification:
- Asset and Liability Relationship: Drawings, although assets for the owner, are deducted from the capital, which is a liability for the company. This accounting practice ensures accurate representation of the financial position.
Conclusion:
- In summary, the preparation of the Statement of Profit and Loss involves careful consideration of concepts such as drawings and capital. Drawings, being personal withdrawals, are subtracted from the capital to accurately portray the financial health of the company. This practice aligns with fundamental accounting principles and ensures a comprehensive understanding of the owner's equity in the business.
Feel free to ask if you have further questions or if there's another aspect of accountancy you'd like to explore!
