Journal entry for withdrawal of goods for personal use

Introduction

Sometimes, we may come across a situation where the business’s owner withdraws some of the inventory goods for personal use. In this case, we need to make the journal entry for withdrawal of goods for personal use in order to account for the decrease in the inventory goods as well as to record the withdrawal transaction as a reduction of the owner’s capital.

Withdrawal of goods for personal use is an event that the owner of the company takes the inventory goods for personal use that is not related to the company’s business. Likewise, the withdrawal activity is not an expense transaction on the income statement as it has nothing to do with the revenue-generating activities.

In accounting, the withdrawal transaction is a reduction of the owner’s equity on the balance sheet. Likewise, the journal entry for withdrawal of goods for personal use will decrease both total assets and total equity on the balance sheet.

Journal entry for withdrawal of goods for personal use

We can make the journal entry for withdrawal of goods for personal use by debiting the withdrawals account and crediting the inventory account.

The withdrawals account in this journal entry is a temporary account in which its normal balance is on the debit side. This account will be cleared at the end of the accounting period with the capital account of the owner.

Likewise, both total assets and total owner’s equity on the balance sheet will decrease by the amount of goods withdrawal in this journal entry.

At end of the accounting period, we can make the journal entry to clear the withdraws account with the debit of the owner’s capital account and the credit of the withdrawals account.

Likewise, after this journal entry, the balance of the withdrawals account will become zero. And as the owner’s capital account has a normal balance on the credit side, this journal entry will decrease its balance by the total amount of withdrawals.

Withdrawal of goods for personal use example

For example, on November 30, the owner of the company takes out a bottle of wine that has the cost of a $1,000 in the inventory from the company for a reunion party with his friends. This withdrawal of $1,000 wine goods from the company is for personal use only as it has nothing to do with the business operation.

In this case, we can make the journal entry for the $1,000 withdrawal of wine goods for personal use by debiting this $1,000 amount into the withdrawals account and crediting the same amount into the inventory account.

In this journal entry, the total assets on the balance sheet decrease by $1,000 as a result of the $1,000 decrease in the inventory account. At the same time, the total owner’s equity also decreases by $1,000 due to the withdrawals balance will deduct the capital account when we determine the total equity on the balance sheet.

Likewise, at the end of the accounting period, we can clear this $1,000 amount in the withdrawals account by debiting this amount to the owner’s capital account and crediting the same amount to the withdrawals account.

After this journal entry, we will see that the balance of the owner’s capital account on the balance sheet will reduce by $1,000 at the end of the accounting period while the balance of the withdrawals account will become zero.