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Difficulty: MediumGoods Withdrawn by Owner for Personal Use

Complete the accounting statement below regarding the journal entry for goods taken by a sole proprietor for private consumption.

Answer:When a sole proprietor withdraws stock costing ₦25,000\text{₦}25,000 for personal use, the double entry in the General Journal requires debiting the 【Drawings】 account and crediting the 【Purchases】 account at cost price.

Answer

The Drawings account is debited and the Purchases account is credited.
Under the double-entry system, any withdrawal of business inventory by the proprietor for personal use is treated as drawings. The Drawings account is debited because drawings increase (reducing total equity), while the Purchases account is credited at cost price to reduce total inventory purchased for resale.

Step-by-Step Solution

1
Identify the nature of the transaction under the business entity concept.
The withdrawal of goods by the owner is a personal transaction (Drawings) that must be kept separate from business operations.
The entity concept dictates that the business and its owner are separate legal and accounting entities.
2
Determine the account to debit.
Debit the Drawings Account.
Drawings represent the value of cash or inventory taken by the owner, which reduces owner's equity and carries a debit balance.
3
Determine the account to credit.
Credit the Purchases Account.
Because the goods taken were originally recorded in Purchases at cost price, crediting Purchases reduces the cost of goods available for sale.

Key Concept

Accounting Entry for Goods Withdrawn for Personal Use
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Topics

Goods Withdrawn by Owner for Personal Use

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