Which of the following journal entries correctly records an owner's draw of \$5,000 from the business?

• A. Debit Owner's Draw \$5,000; Credit Cash \$5,000
• B. Debit Owner's Equity \$5,000; Credit Cash \$5,000
• C. Debit Expenses \$5,000; Credit Owner's Draw \$5,000
• D. Debit Cash \$5,000; Credit Owner's Draw \$5,000

Answer: (A)

Verified step by step guidance

1. Understand the concept of an owner's draw: An owner's draw represents the withdrawal of funds by the owner from the business for personal use. It reduces the owner's equity in the business but is not considered an expense.
2. Identify the accounts involved: The two accounts affected by an owner's draw are 'Owner's Draw' and 'Cash.' The 'Owner's Draw' account is debited to reflect the reduction in equity, and the 'Cash' account is credited to show the decrease in the business's cash balance.
3. Determine the correct journal entry format: A journal entry must follow the format of debiting one account and crediting another. For an owner's draw, the entry would be: Debit Owner's Draw and Credit Cash.
4. Analyze the options provided: Review each option to see which one matches the correct journal entry format for an owner's draw. The correct entry should debit 'Owner's Draw' and credit 'Cash' for \$5,000.
5. Verify the reasoning: Ensure that the chosen journal entry aligns with accounting principles. The owner's draw reduces equity (debit) and decreases cash (credit), which is consistent with the transaction's nature.