Question

In a sole trader's profit and loss account firm, taxation accounts are not present because _______________________.

• A. The proprietor of such a business pays income tax in his private capacity
• B. The income tax department has not made laws regarding the taxation of firms
• C. As sole trader has a simple business, so tax paying is not required
• D. The business is a separate undertaking for the purposes of tax

Answer 1

The correct option is A The proprietor of such a business pays income tax in his private capacity

The profit and loss account of a sole proprietorship does not record the tax paid for the profit earned during several years.

This is because the sole proprietorship is usually a small scale business and such businesses are not considered by the tax committees and thus they are not liable to pay any tax on the profits earned by them.