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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Cycle

Neha Gupta, a sole proprietor, took goods costing Rs 8,000 from her business for personal use during the year, and no entry was made. How should this be treated while preparing final accounts?

Debit Drawings and credit Purchases with Rs 8,000. Goods taken by the proprietor for personal use are drawings that reduce capital, and purchases are reduced at cost because those goods were not available for sale. It is not a business expense, so it is not charged to the Profit and Loss Account.

  1. ADebit Drawings and credit Purchases with Rs 8,000Correct
  2. BDebit Purchases and credit Drawings with Rs 8,000
  3. CDebit Profit and Loss Account and credit Stock with Rs 8,000
  4. DDebit Sales and credit Drawings with Rs 8,000

Explanation

Goods taken by the owner are drawings. The entry debits Drawings, which reduces capital, and credits Purchases, which reduces the cost of goods available for sale in the Trading Account. Reversing it would increase purchases and capital, which is wrong. Charging the Profit and Loss Account treats it as a business expense, which it is not.

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