Drawings in sole trader accounting

Steps:

• Define drawings as the sole trader's personal withdrawals from business funds, reducing owner's equity.
• Assess statement 1: Drawings represent owner financing similar to a business loan from the bank perspective, making it correct.
• Assess statement 2: At year-end, the drawings account balance is transferred to the capital account by debit, correctly reducing capital.
• Assess statement 3: Personal expenses are owner's drawings, not business costs, so excluded from profit or loss.

Why D is correct:

• Personal expenses are treated as drawings per accounting standards (e.g., IFRS for SMEs), not as deductible expenses in the statement of profit or loss.

Why the others are wrong:

• A includes 2, which correctly describes the transfer to capital account.
• B includes 1, which accurately equates drawings to business loan financing.
• C includes 2, which is a standard year-end adjustment.

Final answer: D