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from the business for his personal use are added to the capital at the end because drawings made during the year will reduce the capital
from the business for his personal use are added to the capital at the end because drawings made during the year will reduce the capital at the end but not the profit for the year. In other words, accurate amount of profit (or loss) can be known only by making adjustments, in the capital at the end, for the drawings made. Adjustment for capital introduced: The proprietor may introduce fresh capital in the business during the course of the financial year. This fresh capital is deducted from the capital at the end because the fresh capital will increase the capital of the proprietor at the end of the financial year, but not the profit. Thus the increase in the capital at the end due (ii) r33 to introduction of capital during the year should not be misunderstood for increase in capital because of profits made during the year. Steps for Preparing Statement of Affairs The procedure for preparing the Statement of Affairs can be understood with the following steps: a) Firstly, we are to prepare statement of affairs at the beginning for ascertaining net worth in the beginning. b) Secondly, we shall prepare statement of affairs at the end calculating net worth at the end. c) Thirdly, make adjustments for drawings, and capital introduced during the year. d) In the end, deduct net worth in the beginning from the net worth at the end. The excess of capital at the end over capital in the beginning will denote the profit. Illustration 1: J. Sikidar keeps her books on single entry system. From the following particulars, prepare a statement showing profit or loss made by her for the year ended March 31, 2006. March 31, 2005 (Rs.) March 31, 2006 (Rs.) Debtors 16,000 19,000 Stock 12,000 15,000 Furniture 2,000 4,000 Cash in hand 1,000 1,500 Creditors 1, 200 1,800 Bank overdraft 2,000 During the year Sikidar introduced Rs. 10,000 as further capital in the business and withdrew Rs. 6000
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