What happens when Mandy withdraws $600 from her business?

• A. Increases cash and increases owner's equity
• B. Decreases cash and increases owner's equity
• C. Increases cash and decreases owner's equity
• D. Increases cash but decreases owner's equity

Answer: (D)

When the owner withdraws cash from the business, it’s a drawing that reduces what the owner has a claim to (owner’s equity) and also takes cash out of the business (a reduction in assets). So Mandy’s $600 withdrawal decreases both cash (an asset) and owner’s equity by $600. This isn’t an expense or a revenue item; it’s a balance sheet transaction reflecting a distribution to the owner.

Because of that, the only accurate description is that cash decreases and owner’s equity decreases by the same amount. The options that say cash increases are not correct. If you compare the choices, none perfectly match this double-decrease effect, but the key idea to remember is: withdrawals reduce both cash and ownership stake in the business.