Accounting Equation Effects Test 29

Business Entity Concept states that the business man is separate from the business. Thus, the amount invested by the owner in the business is known as the capital and is liability for the business. This is a universal to all the forms of business whether it is sole proprietorship, partnership firm or a joint stock company.
Therefore, the owner and business are treated separate.

As per Accounting Equation 
Assets = Liabilities + Capital
260,000 = 60,000 + Capital
Capital = 200,000

The concept of money measurement states that only those transactions and happenings in an organisation which can be expressed in terms of money such as sale of goods or payment of expenses or receipt of income, etc. are to be recorded in the book of accounts. 

The concept of money measurement states that only those transactions and happenings in an organisation which can be expressed in terms of money such as sale of goods or payment of expenses or receipt of income, etc. are to be recorded in the book of accounts. 

The concept of business entity assumes that business has a distinct and separate entity from its owners. It means that for the purposes of accounting, the business and its owners are to be treated as two separate entities. Keeping this in view, when a person brings in some money as capital into his business, in accounting records, it is treated as liability of the business to the owner. 

The convention of conservatism is the convention of caution, or the policy of playing safe. This principle requires that in the situation of uncertainty and doubt, the business transactions should be recorded in such a manner that the profits and assets are not overstated and losses and liabilities are not understated. The following are some examples:

1. Closing stock is valued at cost price or Net realisable value, whichever is lower.

2. Joint life insurance policy is shown only at surrender value as against the amount paid.

3. Provision for doubtful debt is created in anticipation of bad debts etc.

4. Provision for pending law suit against the firm, which may either be decided in its favour.

The matching principle  requires that revenues and any related expenses be recognized  together in the same reporting period. Thus, if there is a cause-and-effect relationship between revenue and certain expenses, then record them at the same time. If there is no such relationship, then charge the cost to expense at once. 

This is one of the most essential concepts in accrual accounting, since it mandates that the entire effect of a transaction be recorded within the same reporting period.

The accounting equation i.e. Assets = Capital + liabilities is based on the dual entry concept.
This equation is based on the Balance Sheet.
As per the Dual Entry Concept, for each transaction, there is an equal debit amount for each credit amount and vice versa.
Therefore, the correct answer for the above question is None of these.

The concept of money measurement states that only those transactions and happenings in an organisation which can be expressed in terms of money such as sale of goods or payment of expenses or receipt of income, etc. are to be recorded in the book of accounts.