If the business's owner withdraws cash for his/her personal use what will be the effect on capital?
Correct answer: C. Decrease in capital
- A. Increase in capital
- B. Remain the same
- C. Decrease in capital
- D. No effect on capital
Explanation
Owner withdrawals are drawings, not business expenses, but they reduce the owner's claim on the business. Therefore, capital decreases by the amount withdrawn.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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