Which of the following answers properly classifies these commonly used accounts: (1) Building (2) Wages (3) Credit sales (4) Credit purchases (5) Electricity charges due but not yet paid (outstanding electricity bills) (6) Godown rent paid in advance (prepaid godown rent) (7) Sales (8) Fresh capital introduced (9) Drawings (10) Discount paid
Explanation
The context illustrates that expenses (e.g., rent, salary) decrease capital and are recorded as debits, while assets like furniture increase with debits. Applying this: Building (1) is a tangible asset; Prepaid godown rent (6) is an asset (advance payment). Credit purchases (4) and outstanding electricity (5) are liabilities (obligations). Fresh capital introduced (8) is capital. Sales (7) and Credit sales (3) are revenue (increase capital). Wages (2) and Discount paid (10) are expenses (decrease capital). Drawings (9) also decrease capital and, in this classification, are treated as an expense. Only option (ii) correctly groups all accounts.
Solution Steps
Step 1: Recall from context that expenses decrease capital, assets are resources owned, liabilities are payables, capital is owner's equity, and revenue increases capital.
Step 2: Classify each: (1) Building – Asset; (2) Wages – Expense; (3) Credit sales – Revenue; (4) Credit purchases – Liability; (5) Outstanding electricity – Liability; (6) Prepaid rent – Asset; (7) Sales – Revenue; (8) Fresh capital – Capital; (9) Drawings – Expense (reduces capital); (10) Discount paid – Expense.
Step 3: Compare with options. Option (ii) matches: Assets: 1,6; Liabilities: 4,5; Capital: 8; Revenue: 7,3; Expense: 2,9,10.