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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 Capital appears on the liability side of the balance sheet, as it represents the owner’s claim on business assets. Statement II is correct Capital increases when profit is earned (profit is added to owner’s equity).
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