Accounting for Business Transactions — Important Questions

Liabilities increase by ₹3,000; Capital decreases by ₹3,000

Step 1: 'Outstanding salary' means salary has been incurred (the service has been received by the business) but cash has NOT yet been paid. Step 2: Since no cash is paid, the asset side (Cash) does NOT change. Step 3: The salary is an expense and increases the liability (Outstanding Salary A/c or Salary Payable) by ₹3,000 because the business now owes this amount to employees. Step 4: All expenses reduce capital. So Capital decreases by ₹3,000. Step 5: The equation remains balanced: Assets (unchanged) = Liabilities (+3,000) + Capital (–3,000). Net change on equity side = 0. Option A is wrong –

A Debit Voucher is prepared for cash payments while a Credit Voucher is prepared for cash receipts

Step 1: Recall that in accounting, when cash goes OUT of the business (payment), we are giving away value, which means the account receiving value (the expense/asset/creditor) is DEBITED. Step 2: A Debit Voucher is named so because the non-cash account is debited (e.g., when salary is paid, Salary A/c is debited). This voucher supports all cash payments. Step 3: When cash comes IN (receipt), Cash A/c is debited, but the voucher is called a Credit Voucher because the source account is credited (e.g., Sales A/c or Capital A/c is credited). Step 4: Option A reverses the definition – this is a ver

Furniture A/c Debited (asset increased); Cash A/c Credited (asset decreased)

Step 1: Identify the accounts involved. Furniture is purchased (asset gained) and Cash is paid (asset lost). Step 2: Apply the rule for assets: 'Increase in Asset → Debit; Decrease in Asset → Credit.' Step 3: Furniture (asset) increases → Furniture A/c is Debited. Step 4: Cash (asset) decreases → Cash A/c is Credited. Step 5: Option A reverses both entries – completely wrong. Option C wrongly classifies furniture as an expense and cash as a liability. Option D incorrectly debits cash (cash went out, it should be credited) and credits furniture (furniture came in, it should be debited). This is

Assets increase by ₹5,000; Capital increases by ₹5,000; Liabilities unchanged

Step 1: Goods costing ₹20,000 are removed from inventory (asset decreases by ₹20,000). Step 2: Rahul (Debtor) is created as a new asset worth ₹25,000 (asset increases by ₹25,000). Step 3: Net change in assets = +25,000 – 20,000 = +₹5,000 increase in total assets. Step 4: Since liabilities are unchanged in a credit sale, the equity (Capital) must increase by ₹5,000 to keep the equation balanced. This ₹5,000 is the profit on sale. Step 5: Option B is wrong – Liabilities don't increase; Rahul is a debtor (asset), not a creditor (liability). Option C uses cost price ₹20,000 for capital increase –