When a business owner has goods withdrawn for personal use they are recorded on the drawings account.
For example, if a business owner has goods withdrawn for personal use which cost 600, then the amount must be recorded on the owners drawings account and not as an expense for the business. Assuming no tax is involved in the purchase of the inventory by the business, then the bookkeeping journal entry would be as follows:
Journal Entry for Goods Withdrawn For Personal Use
The accounting records will show the following bookkeeping entries for the owners drawing account.
Goods Withdrawn For Personal Use Bookkeeping Entries Explained
The withdrawal of goods by the owner for personal use is placed on a temporary drawings account and reduces the owners equity. It is not an expense of the business.
Goods are withdrawn from the business and taken by the owner, which reduces the inventory of the business.
The Accounting Equation
The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus equity of the business. This is true at any time and applies to each transaction. For this transaction the accounting equation is shown in the following table.
|– 600||=||0||+||– 600|
In this case the asset of inventory is reduced by the credit entry as the goods are withdrawn from the business. The drawings account has been debited reducing the owners equity is the business. The owner has effectively withdrawn part of their equity as inventory.
The drawings account is a temporary account and is cleared at the end of each year either by a debit against the capital account, repayment by the owner or against the salary of the owner, depending on the circumstances of the original goods withdrawal.
Popular Double Entry Bookkeeping Examples
The goods withdrawn for personal use journal entry is one of many accounting journals, discover another double entry bookkeeping example at the links below: