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shekhar (Individual)     29 December 2009

Accounts Query

Income from other sources should first be reflected in P/L a/c and later credited to Capital a/c OR should be directly credited to Capital a/c?


 9 Replies

A V Vishal (Advocate)     30 December 2009

What type of assessee are you accounting for ? Is the assessee a individual, HUF, firm....... Accounting treatment may vary.

shekhar (Individual)     30 December 2009

For Individual / Proprietory books of a/c

A V Vishal (Advocate)     30 December 2009

If the individual has separate balance sheet for business and in his individual capacity then the income can be accounted in his individual balance sheet under his capital, in case he has a single balance sheet then you can reflect it in his Income and expenditure account and carry the net income to the balance sheet.

shekhar (Individual)     30 December 2009

Thank you Mr. Vishal for your prompt reply. But I am quite confused because I am given to understand that ONLY business related transactions should appear under P/L a/c and any non-business related income or expenses should either be debited or credited DITECTLY TO Proprietor's Capital a/c. Is this correct?

rakesh debnath (advocate & Tax consultant)     01 January 2010

dirrectly credited to Capital Account


Why confuse between Tax Accounting and Financial Accounting. I think u are referring to a tax related query. Income tax is charged on specified defined sources of an individual categorised as Salaries, Income from House Property, Profits and Gains of Business/Profession, Capital Gains and Income from Other Sources. Where an individual has invested capital and run a business, he prepares a summary of results of his operation via P&L account which shows the profit earned or loss made during the period. Capital account is with reference to his business investments where in money brought into business or personal expenses/drawings ie money taken out of business are recorded. Profit/Loss arrived at in P&L account is taken to Capital account(profit is credited and loss is debited) . This account ultimately gives the Capital at the end of business period ie Has my capital increased or eroded from the starting capital  and what transactions has caused profit increases start capital and drawings decreases start capital. These capital activies has nothing to do with income tax. Tax is on Income.. so only the Profit from P&L is taken for Tax. Income from Other Sources is a subhead of source of income . Various sources like Interest on securities, winnings from lotteries etc is taxed under this head which has to be separately stated in the Statement of Tax Computation  along with other Heads of Income and due tax to be calculated.

Take the help of Tax Return Preparers if u need


The Question is :


Income from other sources should first be reflected in

P/L a/c and later credited to Capital a/c OR should be

directly credited to Capital a/c?


From accounting point of view and taxation point of

view; this income has to be credited to the profit and

loss account whether the case is related to individual,

firm or company.


Even if separate books are maintained by the proprietor

for his business and personal account; the both the

balance sheets requires to be merged specially when he

is running more than one firm.




If only business accounts are maintained; then such

income from other sources will be directly credited to

the capital account and special care has to be taken at

the time of making Computation of Income to add this

one as Income From Other Sources.


CA Pradeep Jain (Director)     03 January 2010

You may directly take it into Capital A/c


Dear Shekar - Go with Mr. surendra kumar Rakhecha.  He is right . From point of view of overall activities of individual, a comprehensive Balance sheet for the Individual is prepared . I presume that P&L account covers only business activies of individual. Income from other sources will not be credited to P&L then. But if a comprehensive Income & Expenditure for Individual is prepared, then such income can be credited to it and then taken to Capital a/c in comprehensive B/S. Else take such income directly to Capital a/c in comprehensive B/s.


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