PRC-1 · Chapter 3 · Question 89 of 100
Under normal circumstances, the Owner's Capital account carries a credit balance. If it exhibits a debit balance, what does this signify?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) The business has a capital deficit because accumulated losses and drawings have exceeded the owner's investments.
Explanation
A debit balance in the capital account means the equity has been wiped out, usually because the owner withdrew too much money or the business suffered severe net losses.
More Ledgers and Trial Balance MCQs
- Q91An invoice for Rs. 7,400 was correctly entered into the sales day book as Rs. 4,700. It was subsequently posted to the ledgers as Rs…
- Q92A business paid Rs. 1,500 for vehicle insurance. The bookkeeper debited the Rent Expense account instead of the Insurance Expense account…
- Q93A business spent Rs. 10,000 on routine repairs for a machine and debited the Machinery (asset) account. What type of error is this?
- Q94If a cash receipt of Rs. 6,000 is correctly debited to the Cash book but the accountant completely forgets to post the credit entry to the…
- Q95When a business uses a 'Receivables Control Account' in the General Ledger, the individual customer accounts kept in the Receivables…