Leaning Online

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                                                               ...

The correct answer of this multiple choice question (mcq) is C, as Accounts Payable Or Sundry Creditors shows that amount of money which the business promises to pay to suppliers / vendors later for the goods / merchandise / supplies or services purchased on account / credit and it is recorded based on the accounting concept known as Accrual Basis of Accounting . When the business does not pay to vendor immediately but promises to pay later for supplies purchased, then it creates a Current Liability for the business to pay within the specified time period not exceeding the one year. The journal entry to record is to debit supplies account (as a Current Asset ) and credit accounts payable account. As the business is purchasing supplies, so these are increasing and coming into the business, so we debit supplies account. Accounts payable is also increasing as the business is liable to pay to vendors for supplies purchased on account, so we credit it according to the Rules of Debit And...

The correct options of this multiple choice question (mcq) are A. B and C as these can be used for cash receipts and payments purposes. Money orders can be used as cash receipts & payments just like Cash is used to pay bills, pay salaries, receive payments, etc. Money orders can be used as a exchange of money to buy goods or services just like cash does. Money orders contain the guaranteed amount of money agreed upon between two parties for the exchange of goods or services. It is made by third-party distributor like Post Office, MoneyGram Company, etc. They charge a small fee for the process. Coins, which usually consist of metal, are used as a money, so these can be used as a cash just like paper money. Coins are used to pay bills, paying liability or to acquire assets. However, coins have weights and difficult to use for receipts and payments unlike paper money. These are issued by the central bank of a country. These can be included in the cash balance of a company’s busi...

The correct options of this multiple choice question (mcq) are A, B, C and D as a Source Document is used to support Business Transactions and issued in order to enter the business events into the accounting system and all of these are examples of source documents. A. Checks A check / cheque is issued as a proof of payment made to a payee (named on it) by bank. There is a written order to the bank to pay the amount of check to the person named on it or to the bearer of the check. A check is a legal document and can be served as an evidence of business transaction. B. Payroll Records It shows the payroll records of employees and workers to whom the salaries and wages paid for the past periods. It shows compensation made to them by the company against the work performed or task completed. C. Purchase Order (PO) It is issued by the buyer to the seller that the purchase order is made. It contains the details of goods or services ordered. This purchase order is used as an evidence ...

To solve problem / question, we record the Business Transactions from the points view of business of Callie Taylor, which is a service business providing services to its clients. When the Callie Taylor performed the services worth $800, then the business earned the revenue whether the cash is received or not according to Accrual Basis of Accounting . Here, the client paid $100 in cash and promised to pay the remaining $700 ($800 - $100) on the next month is a receivables for the Callie Taylor’s business, which is a current asset and shown on balance sheet under assets side. As the business received partially in cash against the services performed, so we record the following journal entry in the Books of Accounts of Callie Taylor’s business: (i)                                         Cash a/c  $100                       ...

The correct option of this multiple choice question (mcq) is option B as it represents the correct definition of an Account . Basically, there are five types of accounts Assets, Liabilities, Equity, Revenues and Expenses. In fact, the whole accounting system is starting with the recording of Business Transactions  in which these accounts involved. It shows the increase and decrease in assets, liabilities, equity, revenues and expenses of a business in the accounting period. For example, if Mr. A started business cash $1,000, then in this transaction, there are two accounts involved. One is Cash a/c, which is an asset a/c, and other one is capital a/c, which comes under owner’s equity a/c. Cash a/c shows increases of $1,000 and capital a/c also shows increases of $1,000. The increase and decrease in an account show the debit and credit in T-Account according to the Rules of Debit And Credit . The increase and decrease in Assets and Expenses indicate debits and credits and th...

The correct choices of this multiple choice question are A, C and E, as Land is a Fixed Asset / Non-Current Asset which is expected to be used by the business for a long period of time i.e., more than one year. It is expected that it will provide benefits for more than one year. Unlike building, the land is not depreciated as it is a free gift of Allah (God) as a result it has infinite useful life i.e., a non-determinable useful life. If land is purchased by the business in good location, then it provides more benefits to the business. The land account increases on left side or debit side of its T-Account as it has normal debit balance on debit side while it decreases on right side credit side of its t-account as it has negative or unfavorable balance on credit side. For example, if a company purchased land for $5,000,000 for cash, then the entry to record is to land account and credit cash account. The effect of this Business Transaction on Accounting Equation is shown below: ...

The correct option of this multiple choice question is (d) as Building is categorized under Tangible Non-Current Assets while both Cash and Accounts Receivable are classified under Current Assets on Balance Sheet. This lists falls under the definition of Assets i.e., assets are resources which are owned and controlled by an entity against which the business expects to receive probable future economic benefits. A company purchased the building to be used in the office or for daily working operations of the business. The building is owned and controlled by the business to get future economic benefits such as after acquiring the new building in good location helps in increasing sales for the business and improving working performance of the business. Building may provide benefits to the business in the long run as it has useful life of more than one year. Cash is also used to provide benefits to the business as it is used for various business purposes with the expectation to provi...

The correct options of this multiple choice question (mcq) are A, B, C and E as Equipment (E) is reported on the left side or assets side of Accounting Equation . For example, if a company purchased equipment for cash $6,000, then we debit equipment account and credit cash account with the amount of $6,000. The effect of this Business Transaction on the accounting equation is shown below:                              Assets                     =     Liabilities    +   Equity                 +Equipment   -Cash            =                      +$6,000      -$6,000          = Here E recorded on asset side which is increased by $6,000 ...

The correct options of this multiple choice question (mcq) are A, B and E as Liabilities are debts due or payable owed by the business to outsiders such as creditor, banks, financial institutions, etc., against the assets of the business. These are increased on the right side of their T-Account as these have normal credit balances while these are decreased on debit side of their t-accounts as these have unusual or negative balance on debit side of their t-accounts. The business can settle its liabilities either paying assets such as paying cash to write off liabilities or by providing products or services to others i.e., a business purchased office equipment from its creditor and then instead of paying cash payment to him provided products or services equal to the worth of office equipment. For example, rent of $5,000 is payable by the business to rental company during the current accounting period. As the payment has not yet been made, so the adjusting journal entry to record i...

The correct options of this multiple choice question are 1) and 4) as when sales made to customer on credit worth $4,500, then this Business Transaction affects two types of accounts which are Accounts Receivable (AR) / Sundry Debtors (SD) and Sales Revenue. When sales is made, then the company earned the revenue whether the cash is received or not according to Accrual Basis of Accounting . As the payment is not received immediately from customer but a promise made from him to pay to the company within the specified time period, so the amount due from customer is created which is represented by accounts receivable which is a Current Asset and it is increasing, so we debit it. Sales revenue is also created as it is made so it is also increasing as a result, we credit it according to the Rules of Debit and Credit . The journal entry to record is shown below:                                   ...