Question

Explain the following terms: i. Capital ii. Drawings iii. Account

Answer 1

Explanation:

Capital - Capital is the amount invested in an enterprise by the proprietor ( in case of proprietorship) or by partners in partnership business.It may bin the form of money or assets having monetary value.It is a liability of the business towards the proprietor or partners which increases with further investmens made in the business and the amount of profit earned. On the other hand,it decreases when it is withdrawn or loss is incurred by the business.

Capital is also known as Owner's Equity or Net worth .

• Capital =Assets - Liabilities

Drawing - It is the amount withdrawn or goods taken by the proprietor or partners for personal use . Goods so taken by the proprietor or partners are valued at purchase cost. Drawing reduces the investment (or capital) of the owners.Drawings by the proprietor lr partners is debited to drawing account. At the time of preparing balance sheet,it is deducted from the capital of the proprietor or partner as the case is .

Account - in accounting,an account is a record in the general ledger that is used to sort and store transactions

• OR

An account is a record in an accounting system that tracks the financial activities of a specific asset , liability,equity , revenue,expenses.These events occur throughout the accounting period.Each individual account is stored in the general ledger and used to prepare the financial statements at the end of an accounting period.

There are five main types of account used in an accounting system. Each of these representend in the expanded accounting equation.

• Assets = Liabilities + owners equity + Revenue -expenses

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Answer 2

Answer:

An investment made by the owner to commence the business is known as capital