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why net profit add in capital in balance sheet

Answer Posted / madan

We have to add net profits to his capital in balance sheet
because it is proprietor's capital from that capital we have
have earned profits. And profits are liability to the
business. Profits increases the proprietor's capital. The
proprietor had invested capital to earn profits. So, for all
the above reasons we have to add profits and deduct all
losses of the business.

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