If net income for a proprietorship was $50,000, the owner withdrew $20,000 in cash, and the owner invested $10,000 in cash, the capital of the owner increased by $40,000. True False

Question

Sanai Aguilar

Business

15 January, 12:09

If net income for a proprietorship was $50,000, the owner withdrew $20,000 in cash, and the owner invested $10,000 in cash, the capital of the owner increased by $40,000. True False

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Victoria Carey · Answer 1

True

Explanation:

A proprietorship is a business managed and owned by one person. Legally, there is no distinction between the person and the business. Income from the business is the owner's income.

The owner's capital account is used to record increases or decrease in equity. Profits increase capital, while losses reduce it. Drawings are money taken out by the owner and will reduce capital, but additional investment increase equity.

An income 50,000 will increase capital by 50,000. An additional investment of 10,000 will make capital raise to a net increment of 60,000. Drawing will reduce the capital by 20,000, resulting in a net increment in the capital of 40,000.