Question

Assertion (A) Capital is treated as liability of the business and it is shown in the Liabilities side of Balance Sheet.

Reason (R)As per the Business Entity Principle both Businessman and Business are separate entity.

Choose the correct option:
(a) Both Assertion and Reason are correct and Reason is the correct explanation of the Assertion
(b) Both Assertion and Reason are correct but Reason is not the correct explanation of the Assertion
(c) Only Assertion is correct
(d) Only Reason is correct​

Answer 1

• Both Assertion and Reason are correct and Reason is the correct explanation of the Assertion .

Answer 2

Answer:

Option(a) Both Assertion and Reason are correct and Reason is the correct explanation of the Assertion.

Explanation:

• Assertion (A) Capital is treated as a liability of the business and it is shown on the Liabilities side of the Balance Sheet.

In this assertion, it is taking about capital i.e. brought by the proprietor or owner of the firm to start the business operations.

• Reason (R)As per the Business Entity Principle both Businessman and Business are a separate entities.

The reason states about the separate entity concept that business and businessman are separate from each other. A businessman may die but the business continues for an indefinite period of time. This assumption is assumed in the business entity concepts.

That is why we show Drawings on the debit side because it is an expense for a business due to a separate legal entity and Capital is shown on Liabilities side because it is brought by a business owner who is distinct from the business,

Thus, Both Assertion and Reason are correct and Reason is the correct explanation of the Assertion.

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