Withdraw Goods for Personal Use Journal Entry

Withdraw goods for personal use happens when the company’s owner withdraws the inventory and use them for nonbusiness purpose.

A company is an entity with a specific purpose such as manufacturing, selling services, or goods to the customer for profit. Even if the company is owned 100% by one owner, they are separated between the owner and business entity. The recording of the business and the owner is also separated.

The company purchases goods and records them as the inventory which is the current assets on the balance sheet. The cost of inventory will move to the cost of goods sold when they are sold to the customers. It will reverse the current assets (inventory) and record the expense (cost of goods sold).

The company will mark up the price and sell them at a higher price for profit. During the selling, the company will record sale revenue on the income statement and the cash receives from the customers. If it is a credit sale, the company record accounts receivable, and it will end up receiving cash when the customer settles the accounts receivable.

Sometimes the owner withdraws inventory from the company and uses it for personal benefit. we have to treat the owner and company separately. The movement of goods from company to owner is the move of inventory to the outsider. They have to treat it as a normal sale, which is the sale of goods to customers. The owner has to purchase and pay the same as the normal customers.

However, sometime owner just wants to withdraw goods without payment. They think it is their own company, so they do not have to pay. As accountants, we have to reflect the transaction into the financial statements.

In such a case, the withdrawal of goods is considered the owner’s withdrawal. It is the withdrawal of capital from the company. But instead of withdrawing cash, the owner withdraws inventory instead.

Journal Entry for Withdraw Goods for Personal Use

The goods are the inventory recorded on the company balance sheet.

if the owner withdraws goods for personal use, they have to record the owner’s withdrawal. It happens when taking the goods to use without making payment to the company. The company has to record owner withdrawal and inventory.

The journal entry is debiting the owner’s withdrawal and credit inventory.

The owner’s withdrawal will reduce the equity account on the company balance sheet. The inventory will decrease as the owner use it.

Example

ABC is a trading company that purchases goods and resells. The company purchases goods at $ 5 per unit and resell at $ 10 per unit.

During the month, the owner has withdrawn 100 units of goods for personal use. It is not the purchase, the owner just withdraws them. Please prepare a journal entry for withdrawal of goods for personal use.

it is the owner’s withdrawal as they decide to take the company assets and use them outside the business activities.

The accountant has to record the owner’s withdrawal to keep track of inventory and company equity.

The journal entry is debiting the owner’s withdrawal of $ 500 (100 units x $ 5) and credit inventory of $ 500.