Final answer:
The owner withdrawing cash for personal use leads to a decrease in assets and owner's equity, with no effect on liabilities in the business's balance sheet.
Step-by-step explanation:
When the owner withdraws cash from the business for personal use, there is an impact on the balance sheet of the company, specifically affecting assets, liabilities, and owner's equity. In accounting terms, this transaction is recorded under the category of 'drawings'. Here's how each component is affected:
- Assets: Decrease since cash, which is an asset, is being removed from the business.
- Liabilities: No effect because this action does not involve any outside party claims on the business resources.
- Owner's Equity: Decrease because when the owner takes out cash for personal use, it reduces the owner's claim on the company's resources.
The balance shown on a T-account or balance sheet reflects these changes, ensuring that assets always equal liabilities plus owner's equity, a fundamental concept known as the accounting equation.