If Tim Jones, the owner of Jones Hardware proprietorship, uses cash of the business to purchase a family automobile, the business should record this use of cash with an entry to:
A) Debit Salary Expense and credit Cash.
B) Debit Tim Jones, Salary and credit Cash.
C) Debit Cash and credit Tim Jones, Withdrawals.
D) Debit Tim Jones, Withdrawals and credit Cash.
E) Debit Automobiles and credit Cash.

Question

Quizplus · Accepted Answer

When the owner of a sole proprietorship uses business cash for personal expenses, it is considered a withdrawal from the business. Therefore, the entry should be a debit to Tim Jones, Withdrawals (or Owner's Withdrawals) and a credit to Cash. Option D is the only choice that correctly reflects this. Options A and B involve salary expenses, which do not apply in this scenario. Option C involves a credit to Tim Jones, Withdrawals which is incorrect as it should be a debit for withdrawals. Option E involves the purchase of an automobile, which is not relevant to this transaction.

If Tim Jones, the Owner of Jones Hardware Proprietorship, Uses