Under the capital comparison method, which formula determines profit when drawings and additional capital are known?
Correct answer: A. Closing capital minus opening capital plus drawings minus additional capital
- A. Closing capital minus opening capital plus drawings minus additional capital
- B. Opening capital plus closing capital minus drawings plus additional capital
- C. Closing capital plus opening capital minus drawings minus additional capital
- D. Opening capital minus closing capital plus drawings plus additional capital
Explanation
Profit equals closing capital plus drawings, less additional capital introduced, less opening capital. Drawings reduce closing capital, while additional capital increases it without being profit.
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About Incomplete Records
Incomplete records require profit and financial position to be reconstructed when a complete double-entry system is unavailable. Methods include statements of affairs, capital comparisons, control accounts, cash summaries and margin calculations to find missing sales, purchases, expenses, assets, liabilities and drawings, while distinguishing business profit from changes in capital.
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