Consulting Case Interview Practice Questions

Answer - D - If an owner decides to withdraw money from the company, the result is a debit to the owner’s equity account and a credit to the cash account. A debit will decrease the owner’s equity account and the credit will decrease the cash account.

Key Takeaway: The double-entry method of accounting requires debits and credits to be equal. Each transaction will have a debit and a credit of the same amount. For these types of questions, recall the accounting equation: Assets = Liabilities + Owner’s Equity. Assets are on the left hand side of the equation (the same side as a debit entry, which increases the account), so a credit will decrease the account. Liabilities and owner’s equity are on the right hand side of the equation (the same side as a credit entry, which will increase the account), so a debit decreases the account.