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

debited to trading account

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debited to profit and loss account

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deducted from capital account in the balance sheet

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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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Similar questions

Q. Income tax paid by the sole-proprietor from the business bank account is debited to ______________.

State whether the following statement are true or false.

1. Final Accounts are prepared on the basis of Trial Balance.
2. Trading Account is a part of Profit & Loss Account.
3. Profit Loss Account is prepared to find out Gross Profit or Gross Loss.
4. Gross Profit or Gross Loss is transferred to Balance Sheet.
5. An amount of net profit is added to the capital.
6. All indirect expenses are debited to trading account.
7. Balance Sheet is a statement and not an account.
8. Capital account is a personal account.
9. Amount of prepaid expenses appears on assets side.
10. Bank Overdraft is a liability of business concern.

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Q. Mr. A had a beginning credit balance of Rs. 21,000 in his capital account.At the close of the period his drawing account had a debit balance of Rs. 2,200. On the end-of-period balance sheet, his capital balance is Rs. 32,000. If he contributed an additional Rs. 2,000 to the firm during the period, the period's net income is _______________.

Accrued income is credited to the profit and loss account and shown in the balance sheet as a current asset. Why?

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