What is the net result if the amount of net income for the year is less than the amount of the owner's withdrawals?
A) Owner, Capital increases
B) Cash balance decreases
C) Cash balance increases
D) Owner, Capital decreases

Question

Quizplus · Accepted Answer

If the amount of net income for the year is less than the amount of the owner's withdrawals, it means that the expenses and/or losses were greater than the revenues and/or gains. This results in a decrease in the owner's equity, specifically the Owner, Capital account, which represents the residual interest in the assets of the business after deducting liabilities. Therefore, the correct answer is D, Owner, Capital decreases. Option A is incorrect because an increase in Owner, Capital would imply a positive net income. Option B is not necessarily true since the cash balance can be affected by other transactions besides withdrawals. Option C is also not necessarily true because the cash balance may have been affected by other sources of inflow or outflow, such as sales or purchases of assets.

What Is the Net Result If the Amount of Net