The journal entry to record a withdrawal by the owner would most commonly include _________
options:
a debit to Wage Expense and a credit to Cash
a debit to Capital and a credit to Cash
a debit to Withdrawals and a credit to Cash
a debit to Cash and a credit to Wage Expense
Answer C
yes
To determine the correct journal entry to record a withdrawal by the owner, you need to understand the nature of withdrawals and how they affect the accounting equation. Withdrawals are the assets or cash that the owner takes out of the business for personal use. Since withdrawals decrease the owner's equity in the business, the journal entry should reflect this.
Option C, which includes a debit to Withdrawals and a credit to Cash, is the correct answer. Here's why:
1. Debit to Withdrawals: A debit entry in the Withdrawals account represents the decrease in the owner's equity caused by the withdrawal. By debiting Withdrawals, you reduce the owner's equity and separate the personal and business finances.
2. Credit to Cash: By crediting Cash, you decrease the cash balance in the business, reflecting the actual withdrawal of cash made by the owner.
So, the journal entry to record a withdrawal by the owner would include a debit to Withdrawals and a credit to Cash. This accurately represents the decrease in owner's equity and the decrease in the business's cash.