Journal Entry for Withdrawing Goods from Business for Personal Use

Withdrawing goods from a business for personal use is a common occurrence. However, it requires accurate accounting to maintain the financial health of the business. This article will guide you through the correct journal entry process, explain the reasoning behind it, and provide an example for better understanding.

Understanding the Journal Entry Process

When goods are withdrawn from a business for personal use, they are typically recorded as a reduction in inventory and an expense or drawing account for the owner. This process ensures that the financial statements accurately reflect the transaction.

Journal Entry Explanation

Step 1: Debit the Owner’s Drawings Account

Debiting the owner’s drawings account reflects the personal use of the goods. This account is part of the equity section of the balance sheet and reduces the owner's equity.

Step 2: Credit the Inventory Account

Crediting the inventory account reduces the inventory balance. This reflects the actual quantity of goods left in the inventory after withdrawal.

Example Entry

Assuming the goods withdrawn are valued at $500:

Date Account Titles Debit Credit YYYY-MM-DD Owners Drawings 500 ? Inventory 500 Explanation ? Owners Drawings This account reflects the amount taken out of the business by the owner for personal use. It reduces the owner's equity. ? Inventory This account reflects the value of goods available for sale and is decreased when goods are taken for personal use.

Alternative Journal Entries

The treatment of this transaction can vary depending on the recording methods and the specific accounting system used. Here are a few alternative journal entries:

Method 1: Using the Trading Account Section

The entry is as follows:

Drawings Dr. To Purchase/Goods Cr. Being Goods Withdrawn for Personal Use

Method 2: Using the Equity Account

The accounting entry will be:

Debit: Equity-Drawing account Credit: Asset-Stock Inventory account

Note: My educational system is based on the UK accounting system. For the US system, please replace the word “Stock” with the appropriate term.

Further Learning Resources

For a deeper understanding of accounting terminology and entry procedures, I recommend subscribing to my accounting eBooks. These eBooks, titled 'How to Enter Accounting Entry with Only 6 Questions,' cover a range of scenarios and provide easy-to-understand solutions.

One eBook will be provided for free, and seven eBooks will be available for purchase at a future date. The eBooks will be published on my website starting in 2022. By subscribing, you will be able to identify which accounts to debit and credit easily after answering the 6 questions.

After reading these eBooks, you will be able to handle various accounting transactions with confidence and accurately reflect your business's financial position in the financial statements.