Question

Income -tax of the sole trader paid is shown ___________.

• A. Debited to profit and Loss A/c
• B. Debited to Trading A/c
• C. Debited to his Capital A/c
• D. None of the above

Answer 1

The correct option is C Debited to his Capital A/c

For a Sole Proprietor, income tax is not an expense incurred to generate revenue hence it is not treated as an expense to be paid out of profits. In this case, income tax is treated as a personal expense resulting in drawings from the business concluding to a reduction of capital.