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The capital of a sole trader would change as a result of:
- a)a creditor being paid his account by cheque.
- b)raw materials being purchased on credit.
- c)fixed assets being purchased on credit.
- d)wages being paid in cash.
Correct answer is option 'D'. Can you explain this answer?
Verified Answer
The capital of a sole trader would change as a result of:a)a creditor ...
In the context of a sole trader's capital:
- A: a creditor being paid his account by cheque: This does not change the capital of the sole trader. It simply decreases cash (an asset) and decreases liabilities (the amount owed to the creditor) by the same amount, leaving the net capital unchanged.
- B: raw materials being purchased on credit: This also does not change capital. It increases inventory (an asset) and increases accounts payable (a liability), which keeps the capital unchanged.
- C: fixed assets being purchased on credit: Similar to the above options, purchasing fixed assets on credit increases both assets (the fixed assets) and liabilities (the amount owed), thus leaving the capital unchanged.
- D: wages being paid in cash: This reduces cash (an asset) and directly affects the profit of the business. If wages are an expense, they decrease the net income, which subsequently decreases the capital of the sole trader.
Thus, the correct understanding is that wages being paid in cash will reduce the capital, making D the appropriate choice in the context of changes to the sole trader's capital.
Most Upvoted Answer
The capital of a sole trader would change as a result of:a)a creditor ...
Explanation:
As a sole trader, the capital represents the owner's investment in the business. It is the amount of money or assets that the owner has put into the business. The capital can increase or decrease depending on various transactions that occur within the business.
The correct answer is option 'D' because wages being paid in cash would reduce the owner's capital. Here's why:
1. Definition of wages: Wages are the payments made to employees for their work or services rendered to the business.
2. Payment of wages: When the owner pays wages in cash to the employees, it reduces the amount of cash that the owner has in the business.
3. Effect on capital: The reduction in cash affects the owner's capital since the capital represents the owner's investment in the business. If the owner pays wages in cash, the capital reduces as a result.
4. Example: Suppose the owner invested $10,000 in the business, and after paying wages in cash, the remaining cash in the business is $8,000. The owner's capital would reduce from $10,000 to $8,000 as a result of paying wages in cash.
In conclusion, paying wages in cash reduces the owner's capital, while other transactions such as paying creditors by cheque, purchasing raw materials or fixed assets on credit would not necessarily affect the owner's capital.
As a sole trader, the capital represents the owner's investment in the business. It is the amount of money or assets that the owner has put into the business. The capital can increase or decrease depending on various transactions that occur within the business.
The correct answer is option 'D' because wages being paid in cash would reduce the owner's capital. Here's why:
1. Definition of wages: Wages are the payments made to employees for their work or services rendered to the business.
2. Payment of wages: When the owner pays wages in cash to the employees, it reduces the amount of cash that the owner has in the business.
3. Effect on capital: The reduction in cash affects the owner's capital since the capital represents the owner's investment in the business. If the owner pays wages in cash, the capital reduces as a result.
4. Example: Suppose the owner invested $10,000 in the business, and after paying wages in cash, the remaining cash in the business is $8,000. The owner's capital would reduce from $10,000 to $8,000 as a result of paying wages in cash.
In conclusion, paying wages in cash reduces the owner's capital, while other transactions such as paying creditors by cheque, purchasing raw materials or fixed assets on credit would not necessarily affect the owner's capital.
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The capital of a sole trader would change as a result of:a)a creditor ...
D) since the wages is the expenses occuring we close it to trading and profit or loss a/c ie it is a nominal account opened instead of directly adjusting it to capital account,
wages are reduced from capital for risk bearing
wages are reduced from capital for risk bearing
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The capital of a sole trader would change as a result of:a)a creditor being paid his account by cheque.b)raw materials being purchased on credit.c)fixed assets being purchased on credit.d)wages being paid in cash.Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The capital of a sole trader would change as a result of:a)a creditor being paid his account by cheque.b)raw materials being purchased on credit.c)fixed assets being purchased on credit.d)wages being paid in cash.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The capital of a sole trader would change as a result of:a)a creditor being paid his account by cheque.b)raw materials being purchased on credit.c)fixed assets being purchased on credit.d)wages being paid in cash.Correct answer is option 'D'. Can you explain this answer?.
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