1. Profile photo of Rustam says

    Mr John, are the drawings are levied by income/profits tax? and if the owner could have managed to make a tax collector believe that it is actually wages, then it ? net profit and ? tax levied…does it actually happen in business entities?
    Thank you sir,

    • Profile photo of John Moffat says

      No. The owner is taxed personally on all the profit made by the business – it makes no difference how much or how little he/she took as drawings (or whatever he/she called the drawings).

      All of the profit belongs to the owner, and so the owner pays tax on all the profit. (That is the ‘real life’ position for sole traders!!)

  2. avatar says

    Hi John!

    Pretty long time! ln a merchandising company limited by shares, if one of the directors or shareholders took out goods which he didnt pay for, how l am going to treat that transcation: which of the accounts will l post it to?

    • Profile photo of John Moffat says

      That will not happen in the exam – if they did not intend to pay for them then it would be illegal!

      However, assuming they were intending to pay for them, then Dr Receivables Cr Sales (as with any customer buying on credit).

  3. avatar says

    if the owner takes out cash as wages…..why would it be a withdrawal….he maybe paying himself and others from the sum that he took from the business. How may we know then what exactly he took fro himself?

    • Profile photo of John Moffat says

      If he is paying himself then it is always drawings – never wages – whatever he/she might call it. Anything the owner takes for himself/herself is drawings whatever he/she calls it.

      If any of the money was in fact being used to pay wages to employees, then the question would tell you (and that money would indeed be wages). If you are not told that then you assume that it is all kept by him or her.

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