Is there an effect on the assets account when the owner withdraws cash for personal use?

Definition of Drawings

Drawings are the withdrawals of a sole proprietorship's business assets by the owner for the owner's personal use.

The drawings or draws by the owner (L. Webb) are recorded in an owner's equity account such as L. Webb, Drawings; L. Webb, Draws; or L. Webb, Withdrawals. The other part of the entry will reduce the specific business asset.

Example of Drawings

If the owner (L. Webb) draws $5,000 of cash from her business, the accounting entry will be a debit of $5,000 to the account L. Webb, Drawings and a credit of $5,000 to the account Cash.

Effect of Drawings on the Financial Statements

The owner's drawings will affect the company's balance sheet by decreasing the asset that is withdrawn and by the decrease in owner's equity.

The owner's drawings of cash will also affect the financing activities section of the statement of cash flows. (If an asset other than cash is withdrawn, it is reported as supplemental information on the statement of cash flows.)

The income statement is not affected by the owner's drawings since the drawings are not business expenses.

For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided.

If you have difficulty answering the following questions, learn more about this topic by reading our Accounting Equation (Explanation).


  1. 1. The basic accounting equation is Assets = Liabilities +

    __________

    Owner's Equity or Stockholders' Equity (if a corporation).

    Net assets (if a nonprofit organization).

    .
  2. For each of the transactions in items 2 through 13, indicate the two (or more) effects on the accounting equation of the business or company.

  3. 2. The owner invests personal cash in the business.

    Assets

    Increase

    Right!

    The company's asset account Cash increases.

    Liabilities

    Increase

    Wrong.

    Liabilities are not involved in this transaction.

    Decrease

    Wrong.

    Liabilities are not involved in this transaction.

    No Effect

    Right!

    Liabilities are not involved in this transaction.

    Owner's (or Stockholders') Equity

    Increase

    Right!

    The proprietor's Capital account increases. (If the company is a corporation, then the Common Stock account(s) will increase.)

  4. 3. The owner withdraws cash from the business for personal use.

    Assets

    Decrease

    Right!

    The company's asset account Cash will decrease.

    Liabilites

    Increase

    Wrong.

    Liabilities are not involved in this transaction.

    Decrease

    Wrong.

    Liabilities are not involved in this transaction.

    No Effect

    Right!

    Liabilities are not involved in this transaction.

    Owner's (or Stockholders') Equity

    Decrease

    Right!

    The proprietorship's owner's equity decreases by an entry to the Drawing account. If the company is a corporation, Stockholders' Equity will decrease by an entry to Retained Earnings or to Dividends.

  5. 4. The company receives cash from a bank loan.

    Assets

    Increase

    Right!

    The company's asset account Cash increases.

    Liabilities

    Increase

    Right!

    The company's liabilities (such as Notes Payable or Loans Payable) have increased.

    Owner's (or Stockholders') Equity

    Increase

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    Decrease

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    No Effect

    Right!

    Owner's (Stockholders') Equity is not involved in this transaction.

  6. 5. The company repays the bank that had lent money to the company.

    Assets

    Decrease

    Right!

    The company's asset account Cash decreased.

    Liabilities

    Decrease

    Right!

    The company's liabilities (such as Notes Payable or Loans Payable) have decreased

    Owner's (or Stockholders') Equity

    Increase

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    Decrease

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    No Effect

    Right!

    Owner's (Stockholders') Equity is not involved in this transaction.

  7. 6. The company purchases equipment with its cash.

    Assets

    Increase

    Right!

    The asset Equipment will increase. However, the asset Cash will decrease by the same amount. Therefore, the total amount of assets will not change.

    Decrease

    Right!

    The asset Cash will decrease. However, the asset Equipment will increase by the same amount. Therefore, the total amount of assets will not change.

    No Effect

    Right!

    There is no effect on the total amount of assets. However, the asset Equipment increased by the same amount that the asset Cash decreased.

    Liabilities

    Increase

    Wrong.

    Liabilities are not involved in this transaction.

    Decrease

    Wrong.

    Liabilities are not involved in this transaction.

    No Effect

    Right!

    Liabilities are not involved in this transaction.

    Owner's (or Stockholders') Equity

    Increase

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    Decrease

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    No Effect

    Right!

    Owner's (Stockholders') Equity is not involved in this transaction.

  8. 7. The owner contributes his/her personal truck to the business.

    Assets

    Increase

    Right!

    An asset such as Trucks increased.

    Liabilities

    Increase

    Wrong.

    Liabilities are not involved in this transaction.

    Decrease

    Wrong.

    Liabilities are not involved in this transaction.

    No Effect

    Right!

    Liabilities are not involved in this transaction.

    Owner's (or Stockholders') Equity

    Increase

    Right!

    The proprietor's Capital account increased. (If the company is a corporation, then the Common Stock account(s) would increase.)

  9. 8. The company purchases a significant amount of supplies on credit.

    Assets

    Increase

    Right!

    The company's asset account Supplies increases.

    Liabilities

    Increase

    Right!

    The company's liability account Accounts Payable increases.

    Owner's (or Stockholders') Equity

    Increase

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    Decrease

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    No Effect

    Right!

    Owner's (Stockholders') Equity is not involved in this transaction. Owner's (Stockholders') Equity will be reduced when the supplies are used.

  10. 9. The company purchases land by paying half in cash and signing a note payable for the other half.

    Assets

    Increase

    Right!

    The asset Land has increased. (Two other accounts are also involved.)

    Decrease

    Right!

    The asset Cash has decreased. (Two other accounts are also involved.)

    No Effect

    Wrong.

    The balances of two asset accounts have changed.

    Liabilities

    Increase

    Right!

    Liabilities (Notes Payable account) have increased.

    Owner's (or Stockholders') Equity

    Increase

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    Decrease

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    No Effect

    Right!

    Owner's (Stockholders') Equity is not involved in this transaction.

  11. Information for Items 10 through 13
    Company X provides consulting services to Client Q in May. Company X bills Client Q in May for the agreed upon amount of $5,000. The sales invoice shows that the amount will be due in June.

  12. 10. In May, Company X records the transaction by a debit to Accounts Receivable for $5,000 and a credit to Service Revenues for $5,000. What is the effect of this entry upon the accounting equation for Company X?

    Assets

    Increase

    Right!

    The asset Accounts Receivable increased.

    Liabilities

    Increase

    Wrong.

    Liabilities are not involved in this transaction.

    Decrease

    Wrong.

    Liabilities are not involved in this transaction.

    No Effect

    Right!

    Liabilities are not involved in this transaction.

    Owner's (or Stockholders') Equity

    Increase

    Right!

    Revenues cause Owner's (Stockholders') Equity to increase. (In a proprietorship the owner's Capital account will increase. In a corporation the Retained Earnings account will increase.)

  13. 11. In June, Company X receives the $5,000. What is the effect on the accounting equation and which accounts are affected at Company X?

    Assets

    Increase

    Right!

    The asset Cash will increase. However, the asset Accounts Receivable will decrease. Therefore, the total amount of assets will not change.

    Decrease

    Right!

    The asset Accounts Receivable will decrease. However, the asset Cash will increase. Therefore, the total amount of assets will not change.

    No Effect

    Right!

    There is no effect on the total amount of assets. However, the asset Cash increased by the same amount that the asset Accounts Receivable decreased.

    Liabilities

    Increase

    Wrong.

    Liabilities are not involved in this transaction.

    Decrease

    Wrong.

    Liabilities are not involved in this transaction.

    No Effect

    Right!

    Liabilities are not involved in this transaction.

    Owner's (or Stockholders') Equity

    Increase

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    Decrease

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    No Effect

    Right!

    Owner's (Stockholders') Equity is not involved in this transaction.

  14. 12. What is the effect on Client Q's accounting equation in May when Client Q records the transaction as a debit to Consultant Expense for $5,000 and a credit to Accounts Payable for $5,000?

    Assets

    Increase

    Wrong.

    Assets are not involved in this transaction.

    Decrease

    Wrong.

    Assets are not involved in this transaction.

    No Effect

    Right!

    Assets are not involved in this transaction.

    Liabilities

    Increase

    Right!

    Liabilities increase because Accounts Payable is a liability.

    Owner's (or Stockholders') Equity

    Decrease

    Right!

    An expense will cause Owner's (Stockholders') Equity to decrease.

  15. 13. What is the effect on Client Q's accounting equation in June when Client Q remits the $5,000? Also, which accounts will be involved?

    Assets

    Decrease

    Right!

    The asset Cash will decrease.

    Liabilities

    Decrease

    Right!

    Liabilities will decrease, since Accounts Payable is a liability.

    Owner's (or Stockholders') Equity

    Increase

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    Decrease

    Wrong.

    Owner's (Stockholders') Equity is not involved in this transaction.

    No Effect

    Right!

    Owner's (Stockholders') Equity is not involved in this transaction.

  16. 14.

    Which of the following will cause owner's equity to increase?

    Expenses

    Wrong.

    Expenses will cause owner's equity to decrease.

    Owner Draws

    Wrong.

    Owner's draws will cause owner's equity to decrease.

    Revenues

    Right!

    Revenues will cause owner's equity to increase

  17. 15.

    Which of the following will cause owner's equity to decrease?

    Net Income

    Wrong.

    Net income will cause owner's equity to increase

    Net Loss

    Right!

    A net loss will cause owner's equity to decrease.

    Revenues

    Wrong.

    Revenues will cause owner's equity to increase.

  18. 16.

    The accounting equation should remain in balance because every transaction affects how many accounts?

    Two Or More

    Right!

    Every transaction will affect two or more accounts.

  19. 17. A corporation's net income is eventually recorded in the following stockholders' equity account:

    __________

    Retained Earnings

    .
  20. 18. A corporation's quarterly will cause a reduction in the corporation's retained earnings, which in turn reduces the corporation's stockholders' equity. However, this will not reduce the corporation's net income.
  21. 19. The financial statement with a structure that is similar to the accounting equation is the .
  22. 20. The financial statement that reports the portion of change in owner's equity resulting from revenues and expenses during a specified time interval is the

    __________

    income statement

    .

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Is there an effect on the assets account when the owner withdraws cash for personal use?

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  1. 01. Accounting Basics
  2. 02. Debits and Credits
  3. 03. Chart of Accounts
  4. 04. Bookkeeping
  5. 05. Accounting Equation
  6. 06. Accounting Principles
  7. 07. Financial Accounting
  8. 08. Adjusting Entries
  9. 09. Financial Statements
  10. 10. Balance Sheet
  11. 11. Working Capital and Liquidity
  12. 12. Income Statement
  13. 13. Cash Flow Statement
  14. 14. Financial Ratios
  15. 15. Bank Reconciliation
  16. 16. Accounts Receivable and Bad
    Debts Expense
  17. 17. Accounts Payable
  18. 18. Inventory and Cost of Goods Sold
  19. 19. Depreciation
  20. 20. Payroll Accounting
  21. 21. Bonds Payable
  22. 22. Stockholders' Equity
  23. 23. Present Value of a Single Amount
  24. 24. Present Value of an Ordinary Annuity
  25. 25. Future Value of a Single Amount
  26. 26. Nonprofit Accounting
  27. 27. Break-even Point
  28. 28. Improving Profits
  29. 29. Evaluating Business Investments
  30. 30. Manufacturing Overhead
  31. 31. Nonmanufacturing Overhead
  32. 32. Activity Based Costing
  33. 33. Standard Costing

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What is the effect of owner's withdrawal of cash?

Withdrawals by owner are transfers of cash from a business to its owner. These cash transfers reduce the amount of equity left in a business, but have no impact on the profitability of the entity.

What effect does a withdrawal of assets from the business by the owner have on the owner's equity?

If a business owner takes money out of their owner's equity, the withdrawal is considered a capital gain, and the owner must pay capital gains tax on the amount taken out. An example: Equity in real estate means the part of the value of a property that's not the loan amount.

What accounts are affected when you pay cash to owner for personal use?

Paid Cash to Owner for Personal Use – decreases owner's equity and decreases cash (assets) “typically”. Receiving Cash on Account – increases cash (assets) and decreases accounts receivable account (assets).

Why can an owner withdraw assets for personal use?

Answer and Explanation: The owner of the business is allowed to withdraw assets from a business because, as the rightful owner, they have the power to distribute dividends in kind (i.e. distribution of physical assets).