Question

The capital of a sole trader would change as a result of ____________________.

• A. A creditor being paid his account by cheque
• B. Raw materials being purchased on credit
• C. Fixed assets being purchased on credit
• D. Wages being paid in cash

Answer 1

The correct option is D Wages being paid in cash

The capital would change only when there is a cash transaction.

Fixed assets and raw materials are purchased on credit basis so they do not affect the cash holdings of business and hence the capital.

But, wages are paid in cash so there will be a decrease in cash holdings and correspondingly capital too.