Why does owner withdrawal of cash for personal use increase net income?

Accounting Dec 16, 2020

Expert Solution

The withdrawal of cash for personal use shall be accounted as a debit to withdrawal account and a credit to cash. The net income account is not affected in the transaction, instead, the capital accounts is decreased by the amount withdrawn. This is because of the fact that the owner's withdrawal will be closed to the capital account when closing entries and the post closing trial balance is prepared. Therefore, it is not true that the net income increases when there is withdrawal, instead, the capital account is decreased.

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