Having calculated the profit for the year you find that the owner has withdrawn goods which had been included as part of inventory for personal use. What is the effect of this?
A) Inventory has to be reduced and the expense has to be charged to the income statement
B) Cost of sales has to be reduced and the amount charged to the owners equity
C) Profit increases and owners equity increases

Question

Quizplus · Accepted Answer

When the owner withdraws goods for personal use, it doesn't affect the income statement directly since these goods are not expenses incurred by the business in its operations. Instead, the cost of these goods is deducted from the owner's equity as a withdrawal (drawing) and the inventory account is reduced accordingly, which indirectly affects the cost of sales.

Having Calculated the Profit for the Year You Find That