Cash Withdrawal Journal Entry is Debit the appropriate account (Cash, Drawings, Petty Cash) and credit the bank account. Cash withdrawal refers to the process of taking money out of the business’s bank account for various purposes such as business expenses, owner’s personal use, or transferring cash to the petty cash fund. Recording cash withdrawals accurately is important for maintaining proper financial records and managing cash flow.
What is Cash Withdrawal?
Cash withdrawal is the act of taking cash out from a bank account. It can be done for several reasons, such as paying for business expenses, personal use by the owner (drawings), or replenishing petty cash.
Journal Entry for Cash Withdrawal
When recording cash withdrawal, the specific accounts affected depend on the purpose of the withdrawal. Common accounts involved include:
- Cash Account: Represents the physical cash on hand.
- Bank Account: Represents the bank balance.
- Drawings Account: Represents the amount withdrawn by the owner for personal use.
- Petty Cash Account: Represents the cash kept on hand for minor business expenses.
Here are different scenarios and their respective journal entries:
Scenario 1: Cash Withdrawal for Business Expenses
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Cash | Amount | Cash withdrawn from bank for expenses | |
| DD-MM-YYYY | To Bank | Amount | Bank account reduced for cash withdrawal |
Example of Cash Withdrawal Journal Entry
On 15-09-2023, ₹10,000 is withdrawn from the bank for business expenses.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-09-2023 | Cash | 10,000 | Cash withdrawn from bank for expenses | |
| 15-09-2023 | To Bank | 10,000 | Bank account reduced for cash withdrawal |
Scenario 2: Cash Withdrawal for Owner’s Personal Use (Drawings)
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Drawings | Amount | Owner’s personal cash withdrawal | |
| DD-MM-YYYY | To Bank | Amount | Bank account reduced for personal use |
Example
On 20-09-2023, the owner withdraws ₹5,000 for personal use.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 20-09-2023 | Drawings | 5,000 | Owner’s personal cash withdrawal | |
| 20-09-2023 | To Bank | 5,000 | Bank account reduced for personal use |
Scenario 3: Cash Withdrawal for Petty Cash
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Petty Cash | Amount | Cash withdrawn to replenish petty cash | |
| DD-MM-YYYY | To Bank | Amount | Bank account reduced for petty cash |
Example
On 25-09-2023, ₹2,000 is withdrawn from the bank to replenish petty cash.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 25-09-2023 | Petty Cash | 2,000 | Cash withdrawn to replenish petty cash | |
| 25-09-2023 | To Bank | 2,000 | Bank account reduced for petty cash |
Why Record Cash Withdrawal?
- Accurate Financial Statements: Ensures that all cash withdrawals are recorded, providing a true picture of the business’s financial position.
- Cash Flow Management: Helps in tracking cash outflows and managing liquidity.
- Expense Tracking: Helps in monitoring business expenses and personal withdrawals by the owner.
Steps to Record Cash Withdrawal
- Identify the Purpose: Determine the reason for the cash withdrawal (business expenses, personal use, petty cash).
- Create the Journal Entry: Debit the appropriate account (Cash, Drawings, Petty Cash) and credit the bank account.
- Adjust Financial Statements: Ensure the cash withdrawal is reflected in the financial statements.
Conclusion
Recording cash withdrawals accurately is crucial for maintaining reliable financial records and ensuring the financial statements reflect the true financial position of the business. By understanding how to create the journal entry for cash withdrawals, businesses can manage their cash flow and expenses effectively.