Question

Income tax paid by a sole trader is shown _________.

• A. on the debit side of the Trading account
• B. on the debit side of Profit and Loss account
• C. by way of deduction from the capital in the balance sheet
• D. on the credit side of Profit and Loss account

Answer 1

Answer: (C)

by way of deduction from the capital in the balance sheet

A sole trader does not have a 'Share' capital account instead maintains a Capital Account which shows his net financial position. Income tax paid by sole proprietor is a personal tax paid on the overall profit earned and not a tax on business profit.