Question

Withdrawal of money by the owner is not a expense but a reduction of __________.

• A. Cash only
• B. Cash and capital
• C. Capital only
• D. All of these

Answer 1

The correct option is B Cash and capital

Separate business entity concept of accounting defines that the owner and business are treated two separate entity in the eyes of law.

Any amount contributed towards capital is considered as liabilities in the business books. On the similar line, any amount withdrawn by the owner for personal use is called as drawings which is deducted from capital and will further reduce the cash.

Accounting entry will be as under:

Drawings A/c Dr.

To Cash A/c.