Jennifer has a small business that sells makeup, During 2017 she uses 7,000 of her inventory...
Jennifer has a small business that sells makeup, During 2017 she uses 7,000 of her inventory for her personal use. How much of that 7,000 may Jennifer deduct from the gross income of the business?
Homework Answers
Gross income is the total of receipts and gains from all sources of the business. Jennifer using 7000 of her inventory for her personal use, amounts to a withdrawal from the business. A withdrawal will affect the balance sheet of the concern through the reduction in the value of inventories in the asset part of the balance sheet and a reduction in the capital of Jennifer in the liability part of the balance sheet. Withdrawal of non cash items will also be shown as a note in the cash flow statement. However, it does not affect the income statement of the business and hence it will not affect the gross income of the business either. Therefore the use of inventory for personal use by Jennifer should not be deducted from the gross income of the business.
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