CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting
A firm's books show: Capital Rs 5,00,000, Drawings Rs 40,000, Creditors Rs 1,20,000 and Bank loan Rs 2,00,000. Using the accounting terminology of 'drawings', what is the total amount of liabilities (excluding owner's capital) shown?
Total outside liabilities are Rs 3,20,000, being creditors of Rs 1,20,000 plus the bank loan of Rs 2,00,000. Capital is the owner's claim and drawings are withdrawals that reduce capital, so neither is treated as a liability to outsiders.
- ARs 3,20,000Correct
- BRs 3,60,000
- CRs 8,20,000
- DRs 2,80,000
Explanation
Liabilities to outsiders are Creditors Rs 1,20,000 plus Bank loan Rs 2,00,000 = Rs 3,20,000. Capital is owner's equity, not an outside liability. Drawings reduce capital and are not a liability. Option B wrongly adds drawings to outside liabilities.
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