Asked by Erika Cheng on Jun 07, 2024
Verified
Ramon Ramos has withdrawn $750 from Ramos Repair Company's cash account to deposit in his personal account. How does this transaction affect Ramos Repair Company's accounting equation?
A) increase in assets (Accounts Receivable) and decrease in assets (Cash)
B) decrease in assets (Cash) and decrease in owner's equity (Owner's Withdrawal)
C) decrease in assets (Cash) and decrease in liabilities (Accounts Payable)
D) increase in assets (Cash) and decrease in owner's equity (Owner's Withdrawal)
Owner's Withdrawal
Amounts of cash or other assets that the owner takes from the company for personal use.
Cash Account
An account that records all transactions involving cash inflows and outflows within a company.
Accounting Equation
The foundational formula in accounting representing assets equal to the sum of liabilities and shareholders' equity.
- Determine the function of withdrawals by the owner and their effect on the owner's equity.
Verified Answer
OR
Omayra RiveraJun 12, 2024
Final Answer :
B
Explanation :
Withdrawing cash from the business's account and putting it into the owner's personal account reduces the amount of cash remaining in the business's account. This results in a decrease in assets (Cash) and decreases the owner's equity through an Owner's Withdrawal. Choice A would be incorrect because there is no mention of Accounts Receivable in the given scenario. Choice C would be incorrect because there is no mention of any Accounts Payable in the scenario. Choice D would be incorrect because increasing assets (Cash) and decreasing owner's equity (Owner's Withdrawal) is the opposite of what happens in this scenario.
Learning Objectives
- Determine the function of withdrawals by the owner and their effect on the owner's equity.