How is the accounting equation affected when a partner withdraws cash?
A) Both equity and assets decrease; liabilities are not affected.
B) Assets increase and equity decreases; liabilities are not affected.
C) Both assets and liabilities decrease; equity is not affected.
D) Liabilities decrease and assets increase; equity is not affected.

Question

Quizplus · Accepted Answer

When a partner withdraws cash, the company's assets decrease because cash is an asset that is being reduced. At the same time, the equity decreases because the withdrawal represents a reduction in the owner's (or partner's) claim on the assets of the business. Liabilities are not affected by this transaction.

How Is the Accounting Equation Affected When a Partner Withdraws