Which item is normally included in the income statement rather than treated as a business expense?
Correct answer: C. Drawings made by the owner
- A. Rent of the business premises
- B. Wages paid to shop employees
- C. Drawings made by the owner
- D. Carriage outward on goods sold
Explanation
Drawings are withdrawals of business resources by the owner for personal use. They reduce capital and are not expenses incurred in earning business income.
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About Financial Statements of Sole Traders
Sole trader statements calculate revenue, cost of sales, gross profit, operating expenses and net profit, then present assets, liabilities and owner’s capital in the statement of financial position. Adjustments for closing inventory, accruals, prepayments, depreciation, bad debts, drawings and additional capital connect the two statements.
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