A proprietor makes a cash withdrawal from the proprietorship.How does this affect the accounting equation?

Question

Quizplus · Accepted Answer

When a proprietor makes a cash withdrawal from the proprietorship, the cash asset decreases. This means that the left side of the accounting equation (assets) decreases. At the same time, the owner's equity also decreases because the owner is taking out money from the business. This means that the right side of the accounting equation (owner's equity) also decreases. Therefore, the correct option is D: Assets decrease, owner's equity decreases.

A Proprietor Makes a Cash Withdrawal from the Proprietorship