Accounting Fundamentals Certification (AFC) Practice Test

Question: 1 / 400

Which type of account would be affected by owner withdrawals?

Asset accounts

Expense accounts

Liability accounts

Equity accounts

Owner withdrawals directly impact equity accounts because they represent a reduction in the owner's equity in the business. When an owner withdraws funds from the business for personal use, it reduces the amount of capital the owner has invested in the company. This reduces the overall equity of the business, which reflects the owner's residual interest in the assets of the entity after deducting liabilities.

While withdrawals may indirectly affect asset accounts by decreasing cash or other assets, the primary effect is seen in equity accounts. It’s important to understand that owner withdrawals are not expenses; rather, they represent a distribution of equity to the owner. Thus, the fundamental relationship is that withdrawals decrease the total equity recorded in the equity accounts.

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