Is Cash Withdrawn From Bank For Personal Use Is A Contra Entry

Is Cash Withdrawn From Bank For Private Use Of Sole Owner Is A Contra Entry

No, it is not a Contra Entry as cash withdrawn from bank account of the business for personal use creates Drawings Account which is a personal account and it has no concern with the business matters, according to Separate Entity Concept.

For example, Mr. A is a sole proprietor withdrew Cash of Rs. 20000 from bank account of business for his own personal expenses, then the entry to record is shown below:

Cash Withdrawn From Bank For Personal Use Journal Entry

                                                                     Drawings a/c  20000

 

                                                                                                 Bank a/c  20000

 

                                              (Cash Withdrawn From Bank For Proprietor Own Use)

 

The above entry is the same as in the case of Cash Withdrew From Business By Proprietor For His Own Personal Use. The only difference is that cash account is replaced with bank account as cash is withdrawn from bank account of the business, so we credit bank account from the business point of view.

Drawings account is a Contra Capital Account, so it is deducted from capital account on the balance sheet.

The Effect Of Cash Withdrawn From Bank For Personal Use On The Accounting Equation

                                                 Assets   =   Liabilities    +   Owner’s Equity

                                                  -Bank     =         0             +      (-Drawings)

                                                  -2000     =         0             +          (-2000)

 

The asset side of the accounting equation is decreased by Rs. 2000 due to the decrease of cash from bank account of the business. The right side of the accounting equation is also decreased by Rs. 2000 due to the withdrawal of the owner of the business for his own persona or private expenses.