Which of the following statements is true?
A) The profit of an entity is always represented by an increase in cash.
B) A withdrawal of cash for private use by the owner is shown in the income statement as an expense.
C) Equity can be thought of as the owner's claim to the assets of the entity after deducting all liabilities.
D) Profit can be calculated as net assets at the end of the year less net assets at the beginning of the year less drawings.

Question

Quizplus · Accepted Answer

Equity represents the owner's claim on the assets of the entity after deducting all liabilities. The statement A is incorrect because profit can be represented by non-cash items as well such as depreciation expense. The statement B is incorrect because a withdrawal for private use is not a business expense and should not be included in the income statement. The statement D is incorrect because it is the formula for calculating profit as per the statement of changes in equity and not the income statement.

Which of the Following Statements Is True