A loan received from a bank is normally classified in the business records as:
Correct answer: C. A capital receipt creating a liability
- A. Revenue from ordinary activities
- B. An owner's equity contribution
- C. A capital receipt creating a liability
- D. A reduction in operating expense
Explanation
A bank loan provides cash but creates an obligation to repay, so it is a capital receipt in this classification and a liability in the statement of financial position. It is not income from business operations.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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Accounting is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
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