Under the business entity concept, a personal withdrawal of cash by the owner is recorded as:
Correct answer: B. A reduction in drawings or equity
- A. A business expense
- B. A reduction in drawings or equity
- C. An increase in business revenue
- D. A business liability
Explanation
The owner and the business are treated as separate accounting units. Cash taken for personal use reduces the owner's equity through drawings, not business expense.
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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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