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Question

Income tax paid by a sole proprietor on his business income should be ____________.

A
debited to trading account
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B
debited to profit and loss account
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C
deducted from capital account in the balance sheet
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D
none of the above
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Solution

The correct option is D deducted from capital account in the balance sheet
In sole proprietorship, all profits are transferred to the owner. Income tax is a personal tax which need to be paid by the individual in case of proprietorship.

This will be considered as personal expense or drawings and should be deducted from the capital a/c.

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