Commerce Exam > Commerce Questions > The owner withdraws cash from the business fo...
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The owner withdraws cash from the business for personal use. Then,
- a)Assets: Decrease, Liabilities: Decrease, Equity: Decrease
- b)Assets: Decrease, Liabilities: No Effect, Equity: Decrease
- c)Assets: No Effect .Liabilities: Increase, Equity: No Effect
- d)None of these
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
The owner withdraws cash from the business for personal use. Then,a)As...
- The company's asset account Cash will decrease.
- Liabilities are not involved in this transaction.
- The proprietorship's owner's equity decreases by an entry to the Drawing account. If the company is a corporation, Stockholders' Equity will decrease by an entry to Retained Earnings or to Dividends.
Most Upvoted Answer
The owner withdraws cash from the business for personal use. Then,a)As...
Explanation:
When the owner withdraws cash from the business for personal use, the following changes occur in the accounting equation:
Assets: Decrease
When the owner withdraws cash from the business, the cash balance in the business decreases. Therefore, the asset side of the accounting equation decreases.
Liabilities: No Effect
Withdrawal of cash by the owner does not affect the liabilities of the business. Therefore, the liabilities side of the accounting equation remains the same.
Equity: Decrease
The owner's withdrawal of cash from the business decreases the owner's equity or capital in the business. Therefore, the equity side of the accounting equation decreases.
Thus, the correct answer is option 'B', which states that the withdrawal of cash by the owner for personal use leads to a decrease in assets and equity, but has no effect on liabilities.
In summary, the owner's withdrawal of cash for personal use affects the accounting equation as follows:
Assets: Decrease
Liabilities: No Effect
Equity: Decrease
When the owner withdraws cash from the business for personal use, the following changes occur in the accounting equation:
Assets: Decrease
When the owner withdraws cash from the business, the cash balance in the business decreases. Therefore, the asset side of the accounting equation decreases.
Liabilities: No Effect
Withdrawal of cash by the owner does not affect the liabilities of the business. Therefore, the liabilities side of the accounting equation remains the same.
Equity: Decrease
The owner's withdrawal of cash from the business decreases the owner's equity or capital in the business. Therefore, the equity side of the accounting equation decreases.
Thus, the correct answer is option 'B', which states that the withdrawal of cash by the owner for personal use leads to a decrease in assets and equity, but has no effect on liabilities.
In summary, the owner's withdrawal of cash for personal use affects the accounting equation as follows:
Assets: Decrease
Liabilities: No Effect
Equity: Decrease
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Community Answer
The owner withdraws cash from the business for personal use. Then,a)As...
- The company's asset account Cash will decrease.
- Liabilities are not involved in this transaction.
- The proprietorship's owner's equity decreases by an entry to the Drawing account. If the company is a corporation, Stockholders' Equity will decrease by an entry to Retained Earnings or to Dividends.
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The owner withdraws cash from the business for personal use. Then,a)Assets: Decrease, Liabilities: Decrease, Equity: Decreaseb)Assets: Decrease, Liabilities: No Effect, Equity: Decreasec)Assets: No Effect .Liabilities: Increase, Equity: No Effectd)None of theseCorrect answer is option 'B'. Can you explain this answer?
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