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WAEC Financial Accounting 2013 Question 5

Question 5

Accounting Equation

The capital of a sole trader changes as a result of

  1. A.paying wages by cash.
  2. B.equipment purchased by cheque.
  3. C.drawings by cheque.
  4. D.purchases on credit.
Show the answer and explanation

Answer: C (drawings by cheque.)

Explanation

Drawings reduce the owner's capital directly. Buying equipment or goods only swaps one asset for another or adds a liability.