Owner Distribution Is A(n) Account? | MCQ Question Answer

Owner Distribution Is What Kind Of Account?

Owner Distribution is an Equity Account (D option is correct), as it is paid to business owners out of the profits retained in the business as a claim or rights of the owners of the business against the assets of the business. Owners get the share of their investment in the business. For example, three (3) owners are given $500 (5% of $10000), $200 (2% of $10000) and $100 (1% of $10000) according to their share of investments in the business.

When the business is in profit, then it is favorable to give the return of share to owners. However, in case of loss, it is not considered as an ideal situation to distribute the amount of cash to owners for the investment made in the business as the funds are needed to carry on the business and to sustain and maintain the business.

Owner distribution is recorded on balance sheet as a deduction from owners equity.

Difference Between Owner Distribution And Dividend

In case of profits, Dividends are payments made by the company to its shareholders in proportion to their number of shares invested as a bonus while owner distribution is paid out of profits, retained profits, accumulated profits, reserves, etc., as an extra payment. Dividend is declared only in case of profits but distribution can be given in both profit and loss cases.