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:

Working Capital

The gap between what a firm owns in the short term (assets) and what it owes (liabilities), revealing its efficiency in operations and financial stability in the near term.

Accounts Receivable Turnover

A financial ratio that measures how many times a business can collect its average accounts receivable during a period, indicating how efficiently it manages credit extended to customers.

Average Sale Period

The average time it takes for a company to complete a sales cycle from the initial contact to the final sale.

Average Sale Period

A financial metric that calculates the average time it takes for a company to sell its inventory, indicating the efficiency of sales and inventory management.