A sole trader increases the business's number of motor vehicles by adding his own car to its fleet. Which elements of the accounting equation will change due to this transaction?Question 1Answera.Capital onlyb.Assets onlyc.Assets and liabilitiesd.Assets and capital
Question
A sole trader increases the business's number of motor vehicles by adding his own car to its fleet. Which elements of the accounting equation will change due to this transaction?Question 1Answera.Capital onlyb.Assets onlyc.Assets and liabilitiesd.Assets and capital
Solution
The answer is d. Assets and capital.
Here's the step by step explanation:
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The sole trader adds his own car to the business's fleet. This increases the business's assets because the number of motor vehicles (which are considered assets in accounting) has increased.
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Since the car was added by the sole trader (who is the owner of the business), this transaction also increases the owner's equity or capital. The owner's equity or capital represents the owner's investment in the business. In this case, the sole trader is investing his car into the business, which increases his capital.
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Therefore, both assets and capital are affected by this transaction.
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