Question

Income tax paid by a proprietor $Rs.3,000$ appearing in the Trial balance ______________.

• A. to be debited to Profit & Loss Account
• B. to be credited to Profit & Loss Account
• C. to be added to Capital
• D. to be deducted from Capital

Answer 1

Answer: (D)

to be deducted from Capital

Income tax paid by the proprietor is on the personal income of the proprietor as business do not have income. It is not a expenditure of the firm. It is a form of drawing by the proprietor and is deducted from the capital of the firm as it leads to outflow of proprietor's capital fund from the business.