Question

assuming there are no Drawings made by the Owner of the business and no contributions of Capital were made in either Cash or Inventory, a Net Profit could be earned in an accounting period, only if the following occurs:

a. Total assets increase during the period

b. Total assets exceed liabilities

c. Total liabilities decrease during the period

d. Net assets increase during the period

e. Total liabilities increase during the period

In a manual accounting system, which of the following is incorrect:

	a.	Credit Sales are recorded in the Sales Journal
	b.	Cash Purchase of a Truck is recorded in the General Journal
	c.	Credit Purchases are recorded in the Purchases Journal
	d.	Cash Sales are recorded in the Cash Receipts Journal
	e.	Sale of an Office Building on credit is recorded in the General Journal

Answer 1

                  Assets = Liabilities + Stockholders’ equity

Assets - Liabilities = Stockholders’ equity

           Net assets = Stockholders’ equity (Net assets = Assets - Liabilities)

           Net assets = Capital + Retained earnings

As per the above equation, if net assets increases then stockholders’ equity will also increase because both are equal. If the capital value is constant as there are no withdrawals or contribution to it, then the value of retained earnings will have to increase to make the equation balance. Increase in retained earnings will indicate a net profit earned and added to it.

Answer: d

In a manual accounting system, cash sales are recorded in a cash receipts journal. Similarly cash purchase is recorded in a cash payments journal. Thus cash purchase of any asset cannot be recorded in the general journal in a manual accounting system.

Answer: b

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