Acca financial Accounting (FA) Study Text ac ca (FA)

Chapter 13 

KAPLAN PUBLISHING

229 

Retained earnings 

Retained profits are due (although generally not paid out) to the 

shareholders of the company. As they are the owners of the company the 

profits made by that company are their property. It therefore follows that 

they should be presented as part of the company's liability to the 

shareholders. 

10 Income 

tax 

In the same way that individuals are subject to tax on their income, the income 

generated by a business entity is also subject to tax. 

Sole traders and partnerships 

In the case of a sole trader or a partnership, the tax charge is imposed upon the 

individual, rather than the business. Consequently, if the business bank account 

is used to pay what is a personal tax liability, it will be accounted for as a form of 

drawings made from the business by the owner.