Does the net income represent an amount of cash that can be withdrawn by the owner of a business? Explain.
Answer:
Net income represents amount of revenue minus expenses for the period of time in business. A business owner can withdraw from cash either on hand or in the company's bank account. Withdrawals of cash or other assets by the owner are not considered an expense of the business and therefore, are not a factor in determining the net income for the period. Since drawings by the owner do not constitute an expense, the owner drawing account is closed not into the income Summary account but directly to the owner capital account Revenue, Expense and Drawing(by owner) change owner equity.
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