A Sole Proprietor Makes a Cash Withdrawal from His Company

question 64

Multiple Choice

A sole proprietor makes a cash withdrawal from his company. How does this transaction affect the accounting equation?

• A)Assets, liabilities, and equity remain the same.
• B)Assets decrease; equity decreases.
• C)Assets increase; liabilities decrease.
• D)Assets decrease; equity increases.

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Definitions:

Collateral

Assets or properties pledged by a borrower to secure a loan or obligation, ensuring the lender can recover the loaned funds in case of default by selling the collateral.

Debtor

is an individual or entity that owes money or an obligation to another party, known as the creditor.

Security Agreement

A legal contract that grants a lender a security interest in an asset, serving as collateral for a loan.

Secured Interest

A legal claim or a security interest granted by the debtor to the creditor over the debtor's property, ensuring the property serves as collateral for the repayment of a debt.