University:
University of the People
Course:
BUS 2204 | Personal Finance
Academic year:

2022
Views:

218

Pages:

2
Author:

folclord7m

Owner withdrawal journal entry Sometimes, the owner of the company may withdraw the cash directly from the company for personal use without waiting for the dividend payment. Likewise, the company needs to make the owner withdrawal journal entry in order to account for this event. Owner withdrawal for personal use is not considered an expense on the income statement as the cash outflow is not for business purposes. However, this event will reduce the owner’s equity. Hence, instead of affecting the income statement like those expense or revenue transactions, the owner withdrawal affects the statement of owner’s equity instead. Owner withdrawal journal entry The company can make the owner withdrawal journal entry by debiting the withdrawals account and crediting the cash account. Account Withdrawals Cash Debit Credit $$$ $$$ The withdrawals account is a contra account to the capital in the equity section of the balance sheet. Likewise, the normal balance of the withdrawals account is on the debit side. Hence, in this journal entry, both total assets and total owner’s equity on the balance sheet decrease by the same amount. The balance of the withdrawals account will be cleared to zero at the end of the accounting period with the capital account. In other words, the capital account will be reduced by the amount of owner withdrawals at the end of the accounting period. Likewise, the company can make the journal entry to clear the withdrawals account at the end of the accounting period by debiting the owner’s capital account and crediting the withdrawals account. Owner withdrawal example For example, on November 15, the owner of the company ABC withdraws the cash amounting to $10,000 from the company for personal use. In this case, the company ABC can make the owner withdrawal journal entry for the $10,000 on November 15 as below: Account Withdrawals Cash Debit Credit 10,000 10,000 In this journal entry, both total assets and total owner’s equity on the balance sheet reduce by $10,000 on November 15. Note: Withdrawal comes in Owner’s equity hence it’s treatment in Ledger and Trial balance is same as of O.E