What Happens When The Owner Withdraws Cash Or Goods For Personal Use

When the owner of the business withdraws Cash for his personal use, then we debit Drawing account and credit Cash account. The reason is that Drawings is a Contra Equity Account or a Contra Capital Account in case of sole proprietorship and Partnership forms of business and when the owners created it for personal use and not for business, then it increases, so we debit it as a reversal from Owner’s Equity or Capital Account.

Owner Withdraws Cash For Personal Use Journal Entry

For Example, if Mr. A, as a Sole Owner, withdrew Cash For 50000 from his business for personal use, then we pass the following Entry in the Journal of business as shown below:

                                                    Drawings a/c   50000

                                                                        Cash a/c   50000

(Cash Withdrawn from Business For His Own Personal Use)

The effect of this Business Transaction on Accounting Equation (Assets = Liabilities + Owner’s Equity) is that Asset side decreases by Rs. 50000 i.e., we decrease Cash By Rs. 50000 on Asset side while Liabilities and Equity side also decreases by Rs. 50000 i.e., we deduct the amount of drawing account from capital account and hence debit side (Assets have usually debit balance) cancel the effect of Credit side (Liabilities and Equity have usually credit balance) by the same amount, so there is no increase or decrease in the accounting equation and it remains in balance after recording the business transaction.

Withdraw Goods From business For Personal Use Journal Entry

Similarly, if the owner withdraw Goods worth Rs. 30000 for his own personal use, then following entry is passed:

                                                Drawings a/c  30000

       

                                                                    Purchases a/c   30000

(Goods Taken Away By Proprietor from Business For His Own Personal Use)