Accounting Online Program Certification Practice Test

What is the balance on Daniel's capital and current account on 31 August 20X2 after accounting for profits and drawings?

1. £8,580

2. £10,000

3. £7,000

4. £9,000

The correct answer is: £8,580

To determine the balance on Daniel's capital and current account as of 31 August 20X2, you need to consider several factors, including the initial capital invested, any profits earned during the period, and any withdrawals (drawings) made by Daniel. Starting with the initial capital balance, this serves as the base amount. If Daniel earned profits during the accounting period, those profits would increase the balance of both the capital and current accounts. Conversely, any drawings he made would decrease the balance of these accounts. To arrive at the correct balance of £8,580, the calculation would generally be structured as follows: 1. Begin with the initial capital amount. 2. Add any profits earned during the period. 3. Subtract any drawings taken out by Daniel during the same period. For example, if Daniel had an initial capital of £10,000, earned a profit of £1,580, and withdrew £3,000, the calculation would look like this: - Initial Capital: £10,000 - Plus Profits: £1,580 - Minus Drawings: £3,000 - Resulting Balance: £8,580 This method accurately captures the net effect of Daniel’s business activities on his capital