Question

3(a) State three effects of drawings on the business of a sole proprietor. (b) Explain how the following items are treated in the balance sheet: (i) accrued expenses; (ii) prepaid expenses; (iii) accrued income.

Accepted Answer

(a) Effects of drawings on the business of a sole proprietor: i. It reduces the capital of the proprietor in the business if the drawing is in form of money. ii. It could reduce profit of the drawing if in form of goods. iii. It leads to reduction in asset of comparing if it's in form of cash and flow stock.
(b)(i) Accrued expenses: It is added to current liabilities in the balance sheet.
(ii) Prepaid expenses: It is added to current asset in the balance sheet.
(iii) Accrued income: It is added to current asset in the balance sheet.

WAEC Accounting 2019 Theory — Question 3

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