Question

Goods destroyed by fire Rs.1,000; effect on accounting Equation-

2 points

Minus from Cash & Minus from Stock

Minus from stock & Minus from capital

Plus in stock & Plus in Capital

Minus from Cash & Minus from capital

​

Answer 1

Answer:

Minus from Capital & Stock.

Because goods destroyed by fir is affected negatively, Cost of goods Sold will be minus and Due to loss by fir Capital also deducted.

Explanation:

Answer 2

We are provided with information that the goods have been destroyed by fire and we are asked what will be the effect on the accounting equation. The effect will be the second option Minus from stock & Minus from the capital.

• One of the basic rules of accountancy is that the profits and losses have to be borne by the owner of the organization.
• So when the goods get destroyed by the fire it will be a loss for the organization.
• So as it is a loss the capital of the owner will get reduced or minus.
• In the fire, the goods which are the stock of the organization get destroyed.
• So the amount of Rs. 1000 will have to be reduced from the stock account.
• Therefore from the above, we can infer that the effect on the accounting equation will be the second option which is Minus from stock & Minus from the capital.

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