Withdrawing goods and funds from their business are a common practice among proprietors of business for personal and domestic use. There are times when they themselves avail the services of their business. For example, they may use a company’s car for personal purposes such as going out fora movie with family.
There are times when a proprietor can even purchase private assets for his home and make payments through his business. Proprietors may even purchase some assets for their family members and make payments through his business. Such payments for which owners are responsible are known as a proprietor’s withdrawal and get recorded in his account. All these withdrawals which are made by the proprietor are known as ‘drawings account.’
A drawings account can be debited in various cases. These circumstances are-
- The amount of money that the owner has withdrawn for his private or personal usage.
- Payments for using vehicles, equipment and business car for his private reason.
- Assets of the company which an owner has taken for his domestic purpose.
- Purchasing business materials like calculator, stationery products for the usage of his family members.
- Expenses paid for the owner’s residence in the form of rent.
In each of these above cases, the ‘drawings account’ need to be debited. It will be incorrect to debit other accounts for the owner’s usage. The accountant often makes a mistake of debiting sundry expenses account, trade account and other miscellaneous account instead of drawings account. Thus, if other than the drawings account, any additional account is debited; it is considered to be an error and can be corrected only with a rectification entry.
The total amount of journal entry needs to be determined by adding the correct value of transactions along with the amount of mistaken posting. Again, if the mistaken posting at the wrong side has been made with the same amount, then a rectified journal entry should be made with double the amount.
Links of Previous Main Topic:-
- Book keeping
- Meaning of gaap
- Origin of transaction
- The concept of debit and credit
- Subsidiary books or sub division of journal
- Balancing of ledger accounts
- Errors affecting or disclosed by trial balance introducing the concept
- Errors omission and errors of commission
- Errors in the subsidiary books and their rectification
- Errors of principle
- Treatment of capital or revenue expenditure
Links of Next Accounting Topics:-