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Difficulty: MediumGoods Withdrawn by Owner for Personal Use

Mrs. Adebayo, a sole proprietor, withdrew inventory costing ₦35,000\text{₦}35,000 (with a marked retail selling price of ₦50,000\text{₦}50,000) from her boutique for her family's personal use. What is the correct double entry required to adjust for this transaction in the final accounts?

  1. Debit Drawings account with ₦35,000\text{₦}35,000 and credit Purchases account with ₦35,000\text{₦}35,000Answer
  2. B
    Debit Drawings account with ₦50,000\text{₦}50,000 and credit Sales account with ₦50,000\text{₦}50,000
  3. C
    Debit Purchases account with ₦35,000\text{₦}35,000 and credit Capital account with ₦35,000\text{₦}35,000
  4. D
    Debit Drawings account with ₦35,000\text{₦}35,000 and credit Sales account with ₦35,000\text{₦}35,000

Answer

Debit Drawings account with ₦35,000\text{₦}35,000 and credit Purchases account with ₦35,000\text{₦}35,000
Goods taken by a business owner for personal use represent a reduction in inventory available for resale. Under fundamental double entry accounting, such transactions must be recorded at cost price by debiting Drawings account (to reflect the decrease in equity) and crediting Purchases account (to reduce total cost of goods purchased).

Step-by-Step Solution

1
Determine the relevant valuation basis for owner withdrawals.
The transaction must be valued at the cost price of ₦35,000\text{₦}35,000, not the retail selling price of ₦50,000\text{₦}50,000.
A business owner cannot make a commercial profit on goods withdrawn for personal consumption.
2
Identify the account to receive the debit entry.
Debit Drawings Account with ₦35,000\text{₦}35,000.
Drawings represent withdrawals of business assets by the owner for private use, reducing equity.
3
Identify the account to receive the credit entry.
Credit Purchases Account with ₦35,000\text{₦}35,000.
Crediting Purchases reduces total goods bought for resale so that the Trading Account reflects only inventory available for sale to customers.

Key Concept

Accounting treatment of goods withdrawn by the owner for personal use
Estimated Time:1m 0s
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Topics

Goods Withdrawn by Owner for Personal Use

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