Ramon Ramos has withdrawn $750 from Ramos Repair Company's cash account to deposit in his personal account. How does this transaction affect Ramos Repair Company's accounting equation?
A) Increase Assets (Accounts Receivable) and decrease Assets (Cash)
B) Decrease Assets (Cash) and decrease Owner's Equity (Owner's Withdrawal)
C) Decrease Assets (Cash) and decrease Liabilities (Accounts Payable)
D) Increase Assets (Cash) and decrease Owner's Equity (Owner's Withdrawal)

Question

Quizplus · Accepted Answer

Withdrawing money from the cash account decreases the cash asset for the company. This also serves as an owner's withdrawal, which decreases the owner's equity in the company. Therefore, the accounting equation is affected by a decrease in assets (cash) and a decrease in owner's equity (owner's withdrawal). Choice A is incorrect because there is no mention of Accounts Receivable in the transaction. Choice C is incorrect because there is no mention of Accounts Payable in the transaction. Choice D is incorrect because increasing the assets would be the opposite of what happens when cash is withdrawn.

Ramon Ramos Has Withdrawn $750 from Ramos Repair Company's Cash