Question

Davis company reported net income of $40,000. John Davis, the owner, withdrew $10,000 for personal use. How and by what amount will capital change?

Answer 1

I believe that the capital will decrease by $10000. Capital is the financial value of assets in a business such us funds in deposits account, machinery, production equipment such as manufacturing facilities among others. The money withdrawn from a business by the owner for personal use is called the withdrawal. Withdrawals reduces the amount of capital in business or the equity in the company.