If Odukoya takes money out of business bank account for his own private use, the effect of the transaction is?
- increase in assets and increase in capital
- increase in liabilities and decrease in capital
-
decrease in capital and increase in assets
- decrease in capital and decrease in assets
The correct answer is: C
Explanation
Drawings is the withdrawals from a business by a business owner for his personal use. It represents a reduction of owners' equity (capital) in the business.
Drawings account have a debit balance which increases assets (remember in the balance sheet, assets are recorded on the debit side of the account while liabilities have a credit ballance). Hence drawings would reduce owners capital and increase the asset balance.