BUSINESS ADMINISTRATION
BUSINESS ENVIRONMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Assets increase, liabilities decrease
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Assets, liabilities, and equity all stay the same
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Assets decrease, equity increases
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Assets decrease, equity decreases
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Detailed explanation-1: -In the given situation, the owner has withdrawn $5, 000 cash; it is the owner’s drawings. The drawings will affect the accounting equation by a decrease in the cash amount of the company that is decreasing in assets, and decrease in shareholders’ equity and so will affect the amount of liabilities of the company.
Detailed explanation-2: -When a business owner withdraws cash for personal use, these funds come out this capital account. Proprietor withdrawal cash or other asset from business recorded as credit to cash and a debit to the proprietor draws account i.e. cash in hand to decrease.
Detailed explanation-3: -Withdrawals by the Owner An owner can make a withdrawal of cash or other assets from the business assets if revenue is earned. A withdrawal has the opposite effect on owner’s equity than investments: Withdrawals decrease assets and owner’s equity. Investments increase assets and owner’s equity.
Detailed explanation-4: -The owner’s equity generally has a credit balance, and a debit will decrease its balance. Similarly, the cash account has a debit balance, and a credit will reduce its balance. Therefore, a withdrawal is a transaction that decreases cash and decreases owners’ equity.