Schedule BS - Can Balance Sheet show amount lesser than Profit Loss Account

ITR 409 views 2 replies

Leo Samson

Self

47 Points Posted on 10 December 2024

The trading capital was 1 lakh on April 1st. A net profit of 9 lakhs after deducting all expenses for the year. I withdrew 2.4 lakhs from exchange to bank and utilized for personal expenses. Let us assume no other income, liabilities or assets to keep it simple.

Now Schedule Balance Sheet in ITR3

Source of Funds --> Propreitor Capital = (1 lakh + 9 lakh - 2.4 lakh) = 7.6 lakhs

Application of Funds-->Other Assets = 7.6 lakhs. Nothing in bank or cash. Source and Application sections are matching.

Kindly let me know your thoughts whether will this be a problem as Balance Sheet is for 7.6 lakhs whereas Profit Account is for 9 lakhs is my question. If Balance Sheet needs to balance 9 lakhs then kindly advise how to show this consumption of 2.4 lakhs for personal expenses which is nothing related to business expenses.

Replies (2)

Rama chary Rachakonda

Master in Accounts & high court Advocate

9615 Points Posted on 10 December 2024

Balance Sheet and Profit & Loss Account Reconciliation The Balance Sheet and Profit & Loss Account should be reconciled to ensure accuracy:

1. _Profit & Loss Account_: The net profit of ₹9 lakhs is correctly reflected in the Profit & Loss Account.

2. _Balance Sheet_: The Balance Sheet shows the Proprietor's Capital as ₹7.6 lakhs, which is the opening capital plus the net profit minus the personal withdrawal.

Accounting for Personal Withdrawal The personal withdrawal of ₹2.4 lakhs is not a business expense, but rather a withdrawal from the proprietor's capital:

1. _Reduce Proprietor's Capital_: The personal withdrawal reduces the Proprietor's Capital, which is correctly reflected in the Balance Sheet.

2. _No impact on Profit & Loss Account_: The personal withdrawal does not affect the Profit & Loss Account, as it is not a business expense.

Balance Sheet and Profit & Loss Account Matching The Balance Sheet and Profit & Loss Account are correctly matched:

1. _Source and Application of Funds_: The Source and Application of Funds sections in the Balance Sheet are correctly matched, showing the Proprietor's Capital as ₹7.6 lakhs.

2. _No discrepancy_: There is no discrepancy between the Balance Sheet and Profit & Loss Account, as the personal withdrawal is correctly accounted for.

Conclusion The Balance Sheet and Profit & Loss Account are correctly prepared, and there is no issue with the reconciliation. The personal withdrawal of ₹2.4 lakhs is correctly accounted for as a reduction in the Proprietor's Capital.