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A withdrawal of cash from business by the proprietor of the firm should be debited to ___________.
- a)Cash account
- b)Capital account
- c)Drawing account
- d)Purchase account
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
A withdrawal of cash from business by the proprietor of the firm shoul...
C: Drawings Account
The transaction is based on the separate entity concept which signifies that business and its proprietor are treated two separate legal entity.
Withdrawal of cash by proprietor should be debited to drawing account in the books of the business. Same amount should be credited by the proprietor in cash account.
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A withdrawal of cash from business by the proprietor of the firm shoul...
Withdrawal of Cash by Proprietor
When a proprietor withdraws cash from the business for personal use, it is known as a 'drawing'. This is a transaction between the proprietor and the business. The withdrawal should be recorded in the accounting books of the business.
Account to be Credited
The account to be credited when a proprietor withdraws cash from the business is the 'Drawing Account'. This is a temporary account that is used to record all the withdrawals made by the proprietor. The Drawing Account is a part of the owner's equity section of the balance sheet.
Effect on Capital
The withdrawal of cash by the proprietor reduces the amount of capital that is invested in the business. This means that the proprietor's equity in the business is reduced. The Drawing Account is closed at the end of the accounting period by transferring the balance to the proprietor's capital account.
Example
Suppose a proprietor withdraws Rs. 10,000 from the business for personal use. The journal entry to record this transaction would be:
Drawing A/c Dr. Rs. 10,000
To Cash A/c Rs. 10,000
This entry records the withdrawal of cash by the proprietor and credits the Drawing Account by the same amount. The balance of the Drawing Account is shown on the debit side of the proprietor's capital account.
When a proprietor withdraws cash from the business for personal use, it is known as a 'drawing'. This is a transaction between the proprietor and the business. The withdrawal should be recorded in the accounting books of the business.
Account to be Credited
The account to be credited when a proprietor withdraws cash from the business is the 'Drawing Account'. This is a temporary account that is used to record all the withdrawals made by the proprietor. The Drawing Account is a part of the owner's equity section of the balance sheet.
Effect on Capital
The withdrawal of cash by the proprietor reduces the amount of capital that is invested in the business. This means that the proprietor's equity in the business is reduced. The Drawing Account is closed at the end of the accounting period by transferring the balance to the proprietor's capital account.
Example
Suppose a proprietor withdraws Rs. 10,000 from the business for personal use. The journal entry to record this transaction would be:
Drawing A/c Dr. Rs. 10,000
To Cash A/c Rs. 10,000
This entry records the withdrawal of cash by the proprietor and credits the Drawing Account by the same amount. The balance of the Drawing Account is shown on the debit side of the proprietor's capital account.
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A withdrawal of cash from business by the proprietor of the firm should be debited to ___________.a)Cash accountb)Capital accountc)Drawing accountd)Purchase accountCorrect answer is option 'C'. Can you explain this answer?
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