When the owner of a sole proprietorship withdraws assets from the business for personal use,
A)it is treated like a noncash dividend.
B)it is illegal because the assets belong to the separate entity,the proprietorship.
C)it would be recorded as a loss by the proprietorship.
D)it is recorded as a reduction of owner's equity.

Question

Quizplus · Accepted Answer

When the owner of a sole proprietorship withdraws assets from the business for personal use, it is recorded as a reduction of owner's equity, as the owner's equity represents the owner's share of the assets of the business. This withdrawal is often referred to as a draw or a distribution. It is not treated like a noncash dividend, as a sole proprietorship is not a separate legal entity from the owner. It is also not illegal for the owner to withdraw assets, as the owner has complete control over the business. It is not recorded as a loss by the proprietorship, as a loss signifies a decrease in the overall value of the business.

When the Owner of a Sole Proprietorship Withdraws Assets from the Business