When a trader takes cash from the business for personal use, it impacts the financial statements in the following way:
1. Current Assets:
- When the trader withdraws cash from the business, the cash balance of the business decreases. Cash is a component of current assets.
- Therefore, taking cash out of the business for personal use will reduce the current assets.
2. Profit for the Year:
- The withdrawal of cash for personal use is not considered an expense of the business. It is essentially a drawing or an owner's withdrawal for personal purposes.
- As such, this transaction does not impact the profit or loss of the business. Profit is only affected by business operations and expenses directly related to the generation of revenue.
Putting this together, we see that:
- The current assets will decrease because cash is a part of current assets and removing it from the business will lower the total of current assets.
- Profit for the year will remain unaffected because personal withdrawals do not pertain to the business's operational revenue and expenses.
Hence, the effect on the financial statements is:
- Current assets: decrease
- Profit for the year: no effect
Given the table of options:
\begin{tabular}{|l|l|l|}
\hline & Current assets & Profit for the year \\
\hline A & decrease & increase \\
\hline B & decrease & no effect \\
\hline C & increase & decrease \\
\hline D & increase & increase \\
\hline
\end{tabular}
The correct answer is B:
[tex]\[ \text{decrease} \][/tex]
[tex]\[ \text{no effect} \][/tex]
