(iv) Profit = Capital at the end + ? - Capital introduced - Capital in the beginning.
(a) Sales.
(6) Drawings.
(c) Net Purchases.
(d) None of these.
Answers
(6) Drawings.
ANSWER
Profit is calculated by the taking into account the fluctuations of the capital at the beginning and at the end of the year, by adding the drawings, and deducting the capital introduced to the capital at the end of the year.
Answer:
The correct option is (b)Drawings.
Explanation:
Profit-
Profit is computed by adding the drawings, subtracting the capital added to the capital at the end of the year, and accounting for the variations in capital at the beginning and end of the year.
Sales-
A sale is a deal in which two or more parties exchange money for the buyer receiving tangible or intangible products, services, or assets. Other assets may occasionally be given to a seller.
Drawings-
A partnership draw is when one of the partners withdraws funds or property from the company. A drawing account normally has an accounting transaction that credits the cash account and debits the drawing account. Drawings were any financial transfers made by partners from the partnership firm for their own use.
Net Purchases-
Net purchases are calculated as the total amount of purchases less any discounts, refunds, or allowances. The difference between net and gross purchases, which may be significantly different, can be used to assess how successfully the purchasing department was able to negotiate price reductions.
Hence, from the above discussion we can conclude that when drawings are added to closing capital and opening capital and capital introduced are reduced we get the profit earned during the year.
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