Question

Why drawing is added in profit calculation

Answer 1

Answer:

Explanation:

Drawings refers as withdrawing cash or assets from the company by the owner(s) for personal use. so owner of the company will need to be recorded drawings in the balance sheet as a reduction in the assets and owner’s equity because an accounting record needs to be maintained to track or balance money that withdrawn from the business by its owners.

so, profit or loss of the business by making a comparison between the capitals of two dates of a period are determined. If the drawing is made during the year, it should be added to the amount of closing capital.