Journal entry for goods withdrawn for personal use is Drawings Account Debit because increases the drawings account, reflecting the withdrawal of goods for personal use, Credit to Inventory/Purchase Account because decreases the inventory account, reflecting the reduction in goods held for sale. When a business owner withdraws goods for personal use, it is considered a drawing. This reduces the inventory of the business and also the owner’s equity.
Key Concepts
- Drawings Account: The account representing the withdrawal of goods or cash by the owner for personal use.
- Inventory Account: The account where the cost of goods held for sale is recorded.
Journal Entry for Goods Withdrawn for Personal Use
Example Scenario
Assume an owner withdraws goods worth ₹7,000 for personal use on 01-11-2023.
Step-by-Step Journal Entry
- Record the Withdrawal of Goods
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-11-2023 | Drawings | 7,000 | Goods withdrawn for personal use | |
| 01-11-2023 | To Inventory | 7,000 | Reduction in inventory |
Explanation
- Debit to Drawings: This increases the drawings account, reflecting the withdrawal of goods for personal use.
- Credit to Inventory: This decreases the inventory account, reflecting the reduction in goods held for sale.
Conclusion
Accurately recording goods withdrawn for personal use is essential for maintaining precise financial records and ensuring the accurate tracking of inventory and owner’s equity. Properly managing these transactions ensures that the business’s inventory and equity are accurately represented in the financial statements, contributing to better financial management and reporting.