Final answer:
When a sole trader sells goods for cash, it will affect the elements of the accounting equation that represent assets and capital.
Step-by-step explanation:
When a sole trader sells goods for cash, it will affect the elements of the accounting equation that represent assets and capital. In this case, the sale of goods for £500 will increase the assets of the sole trader by £500, as cash is received from the sale. At the same time, the capital of the sole trader will also increase by £200, as the sale results in a profit of £200 (£500–£300). Therefore, the correct answer is (B) assets and capital. When a sole trader sells goods for cash for £500 that had cost £300, we must consider the effect of this transaction on the accounting equation. The accounting equation is: assets = liabilities + equity (capital).
In this case, the trader has made a sale, increasing cash (an asset) by £500. At the same time, the cost of the goods sold, which reduces the inventory (another asset), is £300. There's also a profit of £200 (£500–£300), which increases the owner's equity, also referred to as capital. Therefore, there is an increase in assets due to the cash received, and there is also an increase in the owner's equity due to the profit earned from the sale. No liabilities are created or affected by this transaction. Based on this, the elements of the accounting equation that change due to this transaction are assets and capital.