CA Foundation · Accounting · Accounting Process
According to the accounting equation, if a business has assets of Rs 8,00,000 and external liabilities of Rs 3,00,000, what is the owner's capital?
Owner's capital is Rs 5,00,000. The accounting equation states that assets equal liabilities plus capital, so capital is found by deducting external liabilities of Rs 3,00,000 from assets of Rs 8,00,000. Adding them instead would be a sign error.
- ARs 11,00,000
- BRs 5,00,000Correct
- CRs 3,00,000
- DRs 8,00,000
Explanation
Assets = Liabilities + Capital, so Capital = 8,00,000 - 3,00,000 = Rs 5,00,000. Adding the liabilities to assets (Rs 11,00,000) wrongly reverses the sign of the liabilities.
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