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Hi
I came across to the below question but I still don’t understand fully the correct answer.The owner of a business has taken goods with a cost of $1000 for his own use. What is the double entry required?
The correct answer is Debit inventory, credit purchases,however I still don’t undenstand it fully. Can anybody help me with this.
Thanks
The correct answer is certainly not debit inventory and credit purchases!!!!!
The correct entry is debit drawings, credit purchases.Suppose the business bought goods for 20,000.
They would debit purchases with 20,000 and usually this figure would appear on the income statement.
However, suppose the owner took 1,000 of them for himself.
The business still bought 20,000, but since he took 1,000 then the business only actually used the remaining 19,000.
So…..we need to credit purchases and debit drawings (to charge the owner)
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