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You said in lecture that drawing is anything the owner takes from business whatever he might call it.
Please state whether these statements are true…
1. Drawings are usually the money taken from business so our cash will reduce in SOFP.
2. BUT it can be anything in real life that he can take from the business such as paintings, furniture, lighting, fittings and fixtures etc.
3. The more precise way of saying is that he can take anything from business which do not affect our profits but it reduces the capital of the business (ie amount owed by business).
4. If we have a business selling DVDs then the owner can take out them as drawing. The cost of those DVDs will be the drawing which will reduce our capital with the same amount.
5. The owner cannot take any non-current assets (as he can call it whatever) because it will reduce our profits so anything which does not affect the profits of the business.
6. IF we run the business on behalf of the owner, so the employees are allowed to take drawings too.
1 and 2 are correct.
3 If the owner takes anything from the business then the profit is not affected anyway.
4 Correct
5 The owner can take non-current assets. He/she is charged as drawings for the value of what is taken and the profit is no different than if the business had sold them.
6. The business belongs to the owner. It is only the owner who has drawings. Employees cannot have drawings – anything going to them is wages.
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