📚🤪 Drawing Your Way Through Accounting: The Importance of Drawings Beyond Your Stick Figures!

 1[
 2  {
 3    "question": "What is the term 'drawings' refer to in accounting?",
 4    "choices": [
 5      "A: Artworks by the CEO",
 6      "B: Withdrawal of profits by the owner",
 7      "C: Company’s investments",
 8      "D: Office supplies"
 9    ],
10    "correct_answer": "B: Withdrawal of profits by the owner",
11    "explanation": "In accounting, 'drawings' refer to amounts taken by the owner for personal use."
12  },
13  {
14    "question": "How do drawings affect the owner’s equity?",
15    "choices": [
16      "A: They increase the owner’s equity",
17      "B: They eliminate the owner's equity",
18      "C: They reduce the owner’s equity",
19      "D: They have no effect on the owner’s equity"
20    ],
21    "correct_answer": "C: They reduce the owner’s equity",
22    "explanation": "Drawings are deducted from the owner's capital, hence reducing the owner’s equity."
23  },
24  {
25    "question": "Where should drawings be recorded in the financial statements?",
26    "choices": [
27      "A: As revenue",
28      "B: As liabilities",
29      "C: Under owner’s equity",
30      "D: As expenses"
31    ],
32    "correct_answer": "C: Under owner’s equity",
33    "explanation": "Drawings are part of the owner’s equity and are recorded under it."
34  },
35  {
36    "question": "What needs to be done with the Drawings account at year-end?",
37    "choices": [
38      "A: Carry it forward",
39      "B: Close it and transfer to Owner’s Capital",
40      "C: Ignore it",
41      "D: Add it to Revenue"
42    ],
43    "correct_answer": "B: Close it and transfer to Owner’s Capital",
44    "explanation": "The balance of the Drawings account is transferred to the Owner’s Capital Account at year-end."
45  },
46  {
47    "question": "How are drawings treated for tax purposes?",
48    "choices": [
49      "A: They are taxable as income of the business",
50      "B: They are not taxed",
51      "C: They are tax-deductible",
52      "D: They are credited back to business income"
53    ],
54    "correct_answer": "B: They are not taxed",
55    "explanation": "Drawings themselves are not taxed but must be recorded accurately for proper tax accounting."
56  },
57  {
58    "question": "Lucy had drawings worth $200,000 throughout the year. How does this impact her business?",
59    "choices": [
60      "A: It increases her business’s revenue",
61      "B: It increases business liabilities",
62      "C: It reduces the business’s equity",
63      "D: It has no effect on the financial statements"
64    ],
65    "correct_answer": "C: It reduces the business’s equity",
66    "explanation": "Drawings reduce the owner’s equity, impacting the overall value of the business."
67  },
68  {
69    "question": "In case studies, why did Henry's drawing of $50,000 raise eyebrows during the board meeting?",
70    "choices": [
71      "A: Because he didn’t buy a sports car for his colleagues",
72      "B: Because it significantly affected the company's equity",
73      "C: Because it increased the company’s revenue",
74      "D: Because it decreased the company’s liabilities"
75    ],
76    "correct_answer": "B: Because it significantly affected the company's equity",
77    "explanation": "Large drawings like Henry’s can reduce the owner’s equity significantly, making it a point of concern for stakeholders."
78  },
79  {
80    "question": "What journal entry is commonly made for drawings?",
81    "choices": [
82      "A: Debit Drawings, Credit Revenue",
83      "B: Debit Cash, Credit Drawings",
84      "C: Debit Drawings, Credit Cash/Bank",
85      "D: Debit Expenses, Credit Drawings"
86    ],
87    "correct_answer": "C: Debit Drawings, Credit Cash/Bank",
88    "explanation": "The common practice is to debit the Drawings account and credit the Cash or Bank account."
89  }
90]