If Tyrol Willow,the sole stockholder of Willow Hardware,withdraws cash of the business to purchase a family car,the business should record this use of cash with an entry to:
A)Debit Accounts Payable and credit Cash.
B)Debit Cash and credit Salary Expense.
C)Debit Cash and credit Dividends.
D)Debit Dividends and credit Cash.
E)Debit Cash and credit Cash.

Question

Quizplus · Accepted Answer

When a sole stockholder withdraws cash from the business for personal use, it is recorded as a dividend. Therefore, the correct entry is to debit Dividends (increasing the dividends expense, which represents a distribution of earnings to the shareholder) and credit Cash (decreasing the asset).

If Tyrol Willow,the Sole Stockholder of Willow Hardware,withdraws Cash of the Business