- This topic has 3 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
Hallo,
In the following example, the answer is $16,500:
The accounting equation at the start of the month was: Assets $14,000 less liabilities $6,500. During the following month, the business purchased a non-current asset for $6,000, paying by cheque, a profit of $9,000 was made, and payables of $7,500 were paid by cheque.
What would the balance on capital be at the end of month?– why the paying by cheque of $6,000 and paybles of $7,500 are not used in the calculation?
– is the paying by cheque considered in the cash a/c or as liability?
Thank you!
If you buy a non-current asset for 6,000 then cash (asset) reduces, but a new asset appears. So total net assets do not change.
If you pay 7500 to payables, the cash (asset) reduces and payables (liability) also reduced. So again, total net assets do not change.
Total net assets (and therefore capital) only change because of profit, more capital introduced, and drawings.
I think it might help you to look at Chapter 2 of our Course Notes and the free lecture that goes with it.
- You must be logged in to reply to this topic.