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A sole trader took some goods costing $1,920 from inventory for his own use. The normal selling price of the goods is $3,840.
Which of the following journal entries would correctly record this?
The answer at the back given is B.
DR Drawings a/c $1,920
CR Purchases a/c $1920But shouldn’t it be A?
DR Drawings S1,920
CR Inventory a/c $1920Reason i choose A: because of later in income statement, value cost of sales is needed. purchases a/c should maintain the purchases transaction only.
Please enlighten me why it should be B but not A.
Thank you.
My understanding is that the inventory account should not be touched until the year end/year beginning.
In a sense it is a purchase, only there was no profit on it, so it was sold at cost. Of course he could have purchased it at selling price, but that might have been a bit pointless!
Two things:
Firstly, the inventory figure in the statements is the actual amount counted at the end of the year. It would be very unlikely that the owner waited until the inventory had been counted. and then decided to take some of it for himself/herself.
Secondly, the purchases does record what the company purchased. However, if the owner took some of those goods that were purchased, then only the remainder were actually used by the business. By crediting purchases, it leaves on the purchases account only those goods that the business actually made use of.
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