Net income for the year is $25,000. Withdrawals of $36,000 per were taken at the end of the year. Which of the following occurs? (Points : 1)
The Capital account decreases by $22,000.
The Capital account decreases by $11,000.
The Capital account increases by $11,000.
The Capital account increases by $22,000.
11,000
To answer this question, we need to understand the relationship between net income, withdrawals, and the capital account.
Net income is the total revenue minus expenses for a period of time, usually a year. In this case, the net income for the year is $25,000.
Withdrawals refer to the money taken out of the business by the owners or shareholders. In this case, the withdrawals at the end of the year were $36,000.
The capital account represents the owners' equity in the business, which includes the initial investments made by the owners and any additional investments or withdrawals over time.
To find out what occurs to the capital account, we need to consider the net income and withdrawals.
Since the net income is $25,000 and the withdrawals are $36,000, the total change to the capital account would be:
Net income - Withdrawals = Change in Capital account
$25,000 - $36,000 = -$11,000
The negative sign indicates a decrease in the capital account. Therefore, the correct answer is:
The Capital account decreases by $11,000.