Question

State whether the following statements are True or False:
Capital is treated as an internal liability.

• A. True
• B. False

Answer 1

The correct option is A True

Business entity concept of accounting says that business and the owner are treated two separate entity.

Hence anything contributed by owner considered liability for the business.

Any business may have two kinds of liabilities i.e. internal liabilities and external liabilities.

Internal liabilities are those which are either funded by owner or friends & relatives of the owner.

External liabilities are those which are funded by the outsiders, i.e. Bank Loans/ Creditors etc.