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CMA Foundation · Fundamentals of Financial and Cost Accounting · Journal and Ledger

Kiran, a proprietor, took goods costing Rs 8,000 (selling price Rs 10,000) for personal use and also paid his son's school fees of Rs 6,000 from the business bank account. What is the correct journal entry?

Debit Drawings Rs 14,000 and credit Purchases Rs 8,000 and Bank Rs 6,000. Goods taken by the owner are valued at cost, and the proprietor's personal school fees are drawings, not a business expense.

  1. ADrawings A/c Dr. 14,000 to Purchases A/c 8,000 and Bank A/c 6,000Correct
  2. BDrawings A/c Dr. 16,000 to Sales A/c 10,000 and Bank A/c 6,000
  3. CDrawings A/c Dr. 14,000 to Sales A/c 8,000 and Bank A/c 6,000
  4. DDrawings A/c Dr. 8,000 and Education Expenses A/c Dr. 6,000 to Purchases A/c 8,000 and Bank A/c 6,000

Explanation

Goods withdrawn are recorded at cost, Rs 8,000, by crediting Purchases. School fees are a personal expense, so they go to Drawings rather than an expense account. Total drawings are 8,000 + 6,000 = 14,000. Option B uses the selling price, which is wrong.

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