When goods are withdrawn for personal use, the cost of those goods is removed from the purchases account because they are no longer available for sale. Crediting the purchases account effectively reduces the total cost of goods purchased during the period, ensuring the accounting records accurately reflect the inventory remaining for business operations.

According to the principles of double-entry bookkeeping, when a proprietor introduces capital into the business, the business receives an asset (usually cash or bank), which is debited. Simultaneously, the proprietor's equity in the business increases. Under the rules of credit and debit, increases in equity or capital are recorded as credits. Therefore, the Capital account is credited to reflect the owner's investment in the entity.

While drawings are typically debited to a Drawings account, the net effect of drawings is a reduction in the owner's equity. In some accounting systems, drawings are credited directly to the Capital account to reflect the reduction in the owner's investment. We acknowledge this approach as a valid method for recording the decrease in equity.

The accounting equation for capital is: Opening Capital + Net Profit - Drawings = Closing Capital. Substituting the values: $12,000 + $3,000 - Drawings = $13,800. Therefore, $15,000 - Drawings = $13,800, which means Drawings = $1,200.

Net income is derived from the accounting equation where Ending Capital = Opening Capital + Net Income - Drawings. Rearranging this formula to solve for Net Income gives: Net Income = Ending Capital - Opening Capital + Drawings. Option C represents this logic mathematically.

Trading capital refers to the total capital employed in the business operations, encompassing both the fixed assets used for long-term production and the floating (current) assets used for day-to-day operations. It represents the total investment required to sustain the business's trading activities.

When a proprietor invests resources into a business, the capital account is credited to reflect the owner's equity or claim against the business assets. This follows the entity concept, which treats the business as separate from its owner.

The capital is calculated by the net assets invested. The purchase price of $20,000 represents the total investment. The assets acquired (equipment $9,000 + inventory $4,000) total $13,000. Adding the $2,000 cash injection results in a total capital contribution of $15,000. This reflects the owner's equity in the business entity.

Drawings represent the withdrawal of cash or other assets from a business by the owner for personal use. This transaction effectively reduces the owner's equity or capital in the business. It is not an expense of the business operations, but rather a reduction of the owner's investment, distinguishing it from business-related expenditures.

In accounting, capital represents the owner's investment in the business. According to the rules of debit and credit, increases in equity (capital) are recorded as credits. Therefore, the normal balance of a capital account is a credit balance.