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Difficulty: HardGoods Withdrawn by Owner for Personal Use

Emeka Enterprises extracted a Trial Balance on 31 December 2025 showing Purchases of ₦450,000\text{₦}450,000 and Sales of ₦720,000\text{₦}720,000. Before closing the books, it was discovered that inventory costing ₦30,000\text{₦}30,000 (with a retail selling price of ₦45,000\text{₦}45,000) withdrawn by the proprietor for personal use had been mistakenly recorded in the Sales Journal as a credit sale to a customer. What are the corrected figures for Purchases and Sales to be presented in the Trading Account?

  1. Purchases of ₦420,000\text{₦}420,000 and Sales of ₦675,000\text{₦}675,000Answer
  2. B
    Purchases of ₦450,000\text{₦}450,000 and Sales of ₦690,000\text{₦}690,000
  3. C
    Purchases of ₦405,000\text{₦}405,000 and Sales of ₦675,000\text{₦}675,000
  4. D
    Purchases of ₦480,000\text{₦}480,000 and Sales of ₦720,000\text{₦}720,000

Answer

Purchases of ₦420,000\text{₦}420,000 and Sales of ₦675,000\text{₦}675,000
Goods taken by an owner for private consumption must be removed from Purchases at cost price (₦30,000\text{₦}30,000), reducing Purchases from ₦450,000\text{₦}450,000 to ₦420,000\text{₦}420,000. Because the transaction was mistakenly recorded as a normal credit sale at selling price (₦45,000\text{₦}45,000), Sales must be reduced by ₦45,000\text{₦}45,000, resulting in a corrected Sales figure of ₦675,000\text{₦}675,000.

Step-by-Step Solution

1
Reverse the erroneous entry in the Sales account
Corrected Sales = ₦720,000−₦45,000=₦675,000\text{₦}720,000 - \text{₦}45,000 = \text{₦}675,000
Goods taken by the owner were incorrectly recorded as sales at selling price (₦45,000\text{₦}45,000), so this amount must be subtracted from total sales.
2
Adjust Purchases for goods withdrawn at cost price
Corrected Purchases = ₦450,000−₦30,000=₦420,000\text{₦}450,000 - \text{₦}30,000 = \text{₦}420,000
Goods withdrawn by the owner for personal use must always be recorded at cost price (₦30,000\text{₦}30,000) and deducted from Purchases.
3
Identify the Drawings adjustment
Drawings Account is debited with ₦30,000\text{₦}30,000
Under the business entity concept, personal withdrawals of goods are debited to Drawings at cost price.

Key Concept

Goods withdrawn by the owner for personal use must be evaluated at cost price and deducted from Purchases. Any erroneous credit to Sales must be reversed at selling price.
Estimated Time:2m 0s
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Goods Withdrawn by Owner for Personal Use

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