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Question
Statement I: Capital is shown on the liability side of a balance sheet because it represents the owner’s claim on business assets.
Statement II: Capital increases when the business makes a profit.
Options
Both I and II are correct.
I is correct, but II is incorrect.
II is correct, but I is incorrect.
Both I and II are incorrect.
MCQ
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Solution
Both I and II are correct.
Explanation:
- Statement I is correct because capital is shown on the liability side of the balance sheet, representing the owner’s claim on business assets.
- Statement II is also correct since capital increases when the business earns a profit (profit is added to capital).
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