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What is the impact of drawings on the final accounts of a sole trader?
What is the impact of drawings on the final accounts of a sole trader?
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What is the impact of drawings on the final accounts of a sole trader?
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Increase owner's equity
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Drawings reduce the owner's equity in the final accounts, as they represent withdrawals made by the owner for personal use.
Questions & Step-by-step Solutions
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Q
Q: What is the impact of drawings on the final accounts of a sole trader?
Solution:
Drawings reduce the owner's equity in the final accounts, as they represent withdrawals made by the owner for personal use.
Steps: 5
Show Steps
Step 1: Understand what drawings are. Drawings are money or assets taken out of the business by the owner for personal use.
Step 2: Recognize that drawings are not expenses of the business. They are not costs related to running the business.
Step 3: Know that drawings affect the owner's equity. Owner's equity is the value of the owner's interest in the business.
Step 4: Realize that when the owner takes drawings, it reduces the total amount of owner's equity in the final accounts.
Step 5: Look at the final accounts. The balance sheet will show a lower owner's equity because of the drawings taken out.
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