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

Which of the following correctly states the effect of a transaction under the rules of debit and credit when a proprietor withdraws goods worth Rs 5,000 from the business for personal use?

Debit Drawings Account and credit Purchases Account for Rs 5,000. Drawings reduce the owner's capital, which is a debit, and the goods leaving the business reduce purchases, which is a credit. No cash moves, so Cash is not credited.

  1. ADebit Drawings Ac, Credit Purchases AcCorrect
  2. BDebit Purchases Ac, Credit Drawings Ac
  3. CDebit Capital Ac, Credit Sales Ac
  4. DDebit Drawings Ac, Credit Cash Ac

Explanation

Drawings is a reduction in capital, so it is debited. Goods taken out reduce the stock/purchases of the business, so Purchases (or Stock) is credited. Cash is not involved, so the cash option is wrong, and reversing the entry would increase capital.

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