Paying the owner for personal use affects which accounts?

• A. Cash decreases; Owner's Equity increases
• B. Cash increases; Drawing increases
• C. Cash decreases; Owner's Equity decreases
• D. Cash increases; Revenue increases

Answer: (C)

Paying the owner for personal use is an owner's drawing. It lowers cash because the business gives up cash for the owner, and it lowers Owner's Equity because drawings reduce the owner's claim on the business assets. It isn’t an expense or revenue, so there’s no increase in cash or in revenue. Thus the effect is that cash decreases and Owner's Equity decreases.