Natalia's business bank account shows a balance at 1 December 20X6 of £3350 in her favour.On 2 December she draws out £500 for her own personal use.On 3 December she pays an amount owing of £1050 and pays into the bank a cheque for £250 which is due from HMRC in respect of VAT. What is the effect of these transactions on Natalia's capital?

Question

Quizplus · Accepted Answer

Drawing out £500 for personal use directly reduces the owner's equity or capital in the business. The payment of £1050 and the deposit of £250 for VAT do not affect the owner's capital directly; they are business transactions affecting the business's cash flow and liabilities/assets, not the owner's personal equity.

Natalia's Business Bank Account Shows a Balance at 1 December