Net income for a company is $35,000 for the current year. The owner withdrew $3,500 per month for personal expenses. The owner's Capital account will show a net
A)decrease of $7,000.
B)increase of $7,000.
C)decrease of $42,000.
D)increase of $42,000.
E)increase of $77,000.

Question

Quizplus · Accepted Answer

The owner's withdrawals for personal expenses are not considered an expense of the business, but rather a reduction of the owner's equity in the business. Therefore, the owner's Capital account will decrease by $3,500 per month, for a total decrease of $42,000 ($3,500 x 12 months). The net income of $35,000 is not relevant to the calculation of the owner's equity in the business. So, the net decrease in the Capital account will be $42,000 - $0 = $42,000.

Net Income for a Company Is $35,000 for the Current