Which Of The Following Statements Is (Are) Correct Regarding The Owner, Capital Account? (Check All That Apply.)

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 it decreases, we debit it and enter other account (owner’s withdrawals) due to which it decreased or debited.

As, the owner’s capital account is the component / part of Owner’s Equity Account, so it is an owner’s equity account and shown on the liabilities & equity side of balance sheet. Actually, it is used in the calculation of owner’s equity which includes capital at the beginning, net profit or net loss for the period, additional investments, owner’s withdrawals and capital at the ending.

The options A and E are incorrect choices here as capital account is not increased on left side of t-account and it is not used to record as a purchase of assets, but, in fact, assets are used to start the business or to stabilize, grow and expand the business.