Introduction:

When an entity borrows a sum of money from a bank, it has an impact on the entity's capital. Capital refers to the financial resources that a company or individual possesses and can be used for investing, expanding operations, or paying off debts. Therefore, borrowing money affects the capital structure of the entity.

Explanation:

1. Increase in Liabilities:
When an entity borrows money from a bank, it creates a liability for itself. The borrowed amount is considered a debt that the entity owes to the bank. This liability increases the total liabilities of the entity as it now has an obligation to repay the borrowed amount to the bank.

2. No Effect on Equity:
Borrowing money does not directly impact the equity or ownership stake in the entity. Equity represents the residual interest in the assets of the entity after deducting its liabilities. Since borrowing creates a liability and not an equity transaction, it does not affect the ownership structure or equity capital of the entity.

3. Increase in Assets:
When an entity borrows money, it receives cash from the bank. This cash received is considered an asset for the entity. The entity can use this cash for various purposes such as financing business operations, investing in assets, or paying off other obligations. Therefore, borrowing results in an increase in the entity's assets.

4. Impact on Capital Structure:
The capital structure of an entity represents the proportionate mix of debt and equity financing it uses to support its operations. Borrowing money from a bank increases the entity's debt component, thereby altering its capital structure. The entity becomes more leveraged as its debt-to-equity ratio increases. This can have implications on the entity's financial health, risk profile, and ability to attract future financing.

Conclusion:

In summary, when an entity borrows a sum of money from a bank, there is no direct impact on its capital. However, the borrowing results in an increase in liabilities and assets, altering the capital structure of the entity. It is crucial for entities to carefully manage their borrowing decisions and assess the long-term implications on their financial position and capital structure.

C. No effect in capital