Leaning Online

The correct options of this multiple choice question (mcq) are A, C and D, as if the company’s debt payment is $5000, for example, but its sources of revenues, either by selling goods or services, assets, etc., generate only $3000, let’s say, then the company is not able to pay its debts on specified time period and it is very for creditors or banks or financial institutions to give loan to such company. In case a company has lot of debt, e.g., from creditors $1,000,000,000, from banks $250,000,000,000,000 and from financial institutions $15,000,000,000, then the company is probably not able to repay its debts, so giving loan to such company is very risky for creditors, banks and financial institutions. If a company, which uses asset financing i.e., the company secures its Assets, such as Accounts Receivable, Inventory, property, etc., against loan to get financing i.e., get money to use for payments for running business’ operations or other uses, needs more money to pay off i...

In Accounting , identifying of Business Transactions are important because these are the exchanges, which take place among parties for monetary records and Bookkeeping which is a part of accounting starts from here, which are used to find out the financial performance, financial position and financial health of the business. The whole accounting process starts by identifying transactions through Source Documents. This is the first step in processing a business transaction in accounting cycle. For Example I, if Mr. A, a sole proprietor, started business with cash $1000 through receipt as a source document. The second step is to Analyze these business transactions with the help of Accounting Equation . Analyze of transaction means finding out the accounts involved in the transaction and increase and decrease in accounts involved, i.e., as in Example I, cash is increased by $1000 on the left side or assets side of the accounting equation and equity is increased due to increase in ca...

The correct options of this multiple choice question (mcq) are D and E, as when the L. Lyons company received cash of $100 from a customer in advance for providing catering services in future, then according to Accrual Basis of Accounting , we record the entry by debited cash account of $100 as a current asset and credit Unearned Revenue Account of $100 as a current liability account as the catering services yet to be performed for the customer. Here cash is increasing as the business received the payment from the customer, so we debit it. As the business is not provided the customer, so it becomes the current liability (unearned revenue) of the business to perform catering services against the advance payment received. As the unearned revenue is a liability and it is increasing, so we credit it according to the Rules of Debit and Credit . Cash is shown on balance sheet on assets side under current assets section while unearned revenue is shown on liabilities & equity side under...

When the business earns $700 of Consulting Revenue (CR), then we debit cash account with $700 and credit consulting revenue account of $700. Here, consulting revenue account is increasing, as it is earning by the business by providing services to client. So, when Revenue is increased, we credit and when it decreases, we debit it. Here, cash account is also increasing as it is receiving by the business, so we debit it according to the Rules of Debit And Credit . The effect of this Business Transaction on Accounting Equation is that cash increases on asset side by $700, so total assets increased by $700 on left side while revenue affects Equity (E) as it is earned by the business due to the profitable activities of the owner of the business, so equity increases by $700 on right side or liabilities & equity side due to increase in consulting revenue account of $700 as shown below: Assets       =    Liabilities    ...

The correct choices of this multiple choice question (mcq) are B, C and D, as Owner’s Capital shows investments made by sole owner / sole proprietor during the accounting period. These investments may be either initial investments i.e., to start the business or further or additional investments to stabilize and grow the business during the accounting period. When the business is successfully running i.e., it earns huge profits during the period then the sole owner uses some part of it for additional investments to grow and expand the business. Capital account is increased on the right side of the T-Account as it has normal balance on credit side, so when it increases, we credit it and when it decreases, we debit it and recorded on the left side of its t-account. In its t-account, the reason of its credited and debited are recorded i.e., when it increases, we record it on right side and enter other account (such as cash, inventory) due to which it increases or credited and when...

The correct choice of this multiple choice question is C, as Owner’s Equity shows the rights of owner of the business (Sole Proprietorship & Partnership) against the Assets of the business. It is proved with the help of Accounting Equation as shown below: Assets = Liabilities  +  Owner’s Equity   Owner’s Equity = Assets - Liabilities We get Owner’s equity after deducting all the liabilities (claims / rights of outsiders against assets) from assets. A sole owner / proprietor is the person who invested into the business by assets such cash, equipment, property, goods, etc., to start the business to earn profits from profitable activities. Such initial investment ( Capital ) gives the business, assets in the form of cash or goods against which the proprietor has rights to claim from the business known as owner’s equity. The journal entry to record is to debit a cash, equipment and purchases account / inventory account (if cash, equipment and goods are invested) and...

A Statement of Owner’s Equity shows movements or changes in Owner’s Equity over a period of time. If the owner’s equity increases then it indicates that the owner’s claims in the business increased due to profitable activities, owner’s additional investments and withdrawals during the accounting period. It is prepared, in case of Sole Proprietorship and Partnership businesses, after the preparation of Income Statement (Statement of Comprehensive Income) but before the preparation of balance sheet (Statement of Financial Position) for the accounting period. Format & Components Of Statement of Owner’s Equity                                                               ...