If Odukoya takes money out of business bank account for his own private use, the effect of the transaction is?

  • A increase in assets and increase in capital
  • B increase in liabilities and decrease in capital
  • C decrease in capital and increase in assets
  • D decrease in capital and decrease in assets
jamb 2009accounting

The correct answer is C. decrease in capital and increase in assets

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.

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