Which of the following is/are correct regarding the accounting equation? 1. The equation always holds true under the double entry system. 2. Purchase of goods on credit increases assets and liabilities. 3. Payment to creditors decreases assets and increases liabilities. 4. Introduction of capital by the proprietor increases both assets and capital. MCQ with Answer and Explanation
Which of the following is/are correct regarding the accounting equation? 1. The equation always holds true under the double entry system. 2. Purchase of goods on credit increases assets and liabilities. 3. Payment to creditors decreases assets and increases liabilities. 4. Introduction of capital by the proprietor increases both assets and capital.
A. 1, 2 and 3
B. 1, 2 and 4
C. 2, 3 and 4
D. All of the above
Answer: Option B
Solution (By JKSSB Mock Tests)
Statement 3 is incorrect because payment to creditors decreases both assets (cash/bank) and liabilities (creditors). 1, 2, and 4 are correct.
Assertion (A): Capital is treated as an internal liability of the business. Reason (R): The business and its owner are considered distinct entities under the Business Entity Concept.
A.Both A and R are true but R is not the correct explanation of A
B.Both A and R are true and R is the correct explanation of A
Explanation:
The Business Entity Concept treats the owner as a separate entity from the business, making the capital invested by the owner an internal liability.
S1: Under GST, the Reverse Charge Mechanism (RCM) is applicable on the supply of notified services by an unregistered person to a registered person. S2: Under RCM, the recipient of the service is liable to pay GST and can also claim ITC on the same, subject to normal ITC rules. Which statement(s) is/are correct?
Explanation:
Both statements are correct. RCM shifts the liability to pay GST to the recipient for notified services from unregistered suppliers, and the recipient can claim ITC if the service is used for business and not blocked under Section 17(5).
No comments yet. Be the first to start the discussion!