Question

What happens to the net profit shown by the Profit and Loss Account in a sole proprietorship?

Options

•  It is transferred to the Capital Account

• It is transferred to the Trading Account

• It is shown as an expense in the next period

• It is shown as a liability

Answer 1

It is transferred to the Capital Account

Explanation:

Net profit is transferred to the owner's Capital Account as it increases the owner's equity in the business