# IGCSE Accounting Paper-2: Specimen Questions with Answers 52 - 55 of 103

## Passage

Miss. Rosy started a small business as a sole proprietor in the year 2013 and had the following transaction during the year:

• Commenced business with cash £200000
• Purchases made for cash £80000 and credit £120000
• Made Sales of £160000 in cash of goods costing £120000
• Rent paid £2000 and outstanding rent for the year was £400
• Bought car on credit £20000
• Purchased a mobile phone for personal use £20000
• Purchased a land for cash £80000

## Question number: 52 (2 of 7 Based on Passage) Show Passage

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One Liner Question▾

Capital:

### Explanation

Capital: It is said to be the value of assets minus he value of liabilities. In simple words it is the residual value that would be released after the sale of all the assets and payment of all liabilities.

## Question number: 53 (3 of 7 Based on Passage) Show Passage

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One Liner Question▾

Liabilities:

### Explanation

Liabilities: The term liabilities refer to the items which belong to the business and have a negative financial impact. In other words money has to be paid by the business at some point of time. E. g. Outstanding rent.

## Question number: 54 (4 of 7 Based on Passage) Show Passage

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### Write in Short

What is the importance of accounting equation in a business?

### Explanation

Accounting equation is said to be the foundation or the stepping stone for the double entry system of book keeping. As per the Accounting equation, in every business:

Assets = Liabilities + Capital, Which means, that all the assets in the business are either financed by the proprietor or by borrowing funds from outside.

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