Question

what Effect would purchase of goods on credit have on liability and capital of business

Answer 1

Before we know about accounting it is important to know about balance sheet which has two side assets and liabilities.
 All component of assets are equal to all component of liabilities as shown above.

Balance sheet is always equal because the assets of a business are purchased either form funds supplied by the proprietor or form the funds provided by external parties. The above  balance sheet discloses that there are total assets worth Rs 207000 out of which assets 100000 has been purchased form capital and 107000 assets are purchased from the outside source or funds provided by external parties.

Assets=Liabilities + Capital

207000= 107000 + 100000

Accounting equation signifies that the total assets of the firm will be equal to total liabilities of the firm which includes even capital.But capital is shown separately as it is internal liabilities.

A business transaction result that if the increase in assets there will be also be a corresponding increase in the amount of either capital or liabilities by the same amount.

What is accounting equation with example

What a company owes (assets) must be = what a company owes to its creditors (liabilities)

Capital is internal liability for business.

MARK BRAINLIEST..