Question

Q7) Which Accounting Principle assumes that ‘Capital is a liability for the business’?

Answer 1

As per dual entity concept, business is altogether a different entity than that from owner. Transactions are recorded in books of accounts from viewpoint of business only.

Now, capital is the amount contributed by the owner for carrying out the business activities.

Since capital belongs to owner, its the responsibility of business to pay back the capital to the owner when business is winded up. Hence, capital is a liability of business.