Ramon Ramos has withdrawn $750 from Ramos Repair Company's cash account to deposit in his personal account. How does this transaction affect Ramos Repair Company's accounting equation?

Question

Business

Aspen

2 December, 17:37

Ramon Ramos has withdrawn $750 from Ramos Repair Company's cash account to deposit in his personal account. How does this transaction affect Ramos Repair Company's accounting equation?

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River Rice · Answer 1

Answer: Decrease in Assets

Decrease in Owner's equity

Explanation:

Cash account is an asset. Specifically a current asset. Current assets are assets that will be converted within a year. Taking the cash out of the cash account lowers the asset in the business. This will thus lead to a decrease in assets. And the asset will decrease on the credit side of the account.

Because Ramon took money out of the business, this is known as a withdrawal. A withdrawal is money the owner takes out of the organisation to use for his personal expenses. Withdrawals thus lower the cash in the organisation. However when an owner takes cash from the organisation, then this comes from the organisation's share capital. So the owner is basically cashing out a portion of his share in the organisation through this withdrawal. Share capital falls under equity. So when share capital decreases then it will lead to a decrease in equity. This will decrease on the debit side of the account.