A businessman’s daughter comes to father’s garments shop and takes the clothes of her choice for her personal use. Why this transaction is to be accounted for when the business belongs to the proprietor? In what manner, the transaction is to be recorded? What impact it would have on the financial statements, if the transaction is not recorded?


Ans. This transaction — consumption of garments by the owner’s daughter — is to be accounted for even when the business belongs to the proprietor. Reason is issue of ownership of business and calculating correct operating results are two different matters. For the proprietor too, it is necessary to know the correct operating results and financial position. Business may be in loss and if the proprietor does not know in time, remedial steps cannot be taken by him, in time. The transaction is to be recorded as personal drawings of the proprietor. If not so recorded, profit would be understated and capital would be overstated.

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