A sole trader takes goods from inventory for personal use. The goods cost $400 and have a selling price of $600. What is the correct double entry to record this?

Answer options:

Dr Drawings $600, Cr Sales $600

Dr Drawings $400, Cr Inventory $400

Dr Drawings $400, Cr Purchases $400

Dr Purchases $400, Cr Drawings $400

How to approach this question

Remember that a business cannot make a profit from selling to its owner. Record at cost.

Full Answer

C.Dr Drawings $400, Cr Purchases $400✓ Correct

When an owner takes goods for personal use, it is treated as drawings. The goods must be removed from the business at cost ($400) because no profit has been realized. The entry is Debit Drawings (to increase owner's drawings) and Credit Purchases (to reduce the expense).

Common mistakes

Recording the transaction at selling price.

Question 29 All questions Question 31

Practice the full ACCA FA — Financial Accounting Practice Exam 2

65 questions · hints · full answers · grading

More questions from this exam

Q01BioGenix Ltd, a biotech startup, is deciding whether to disclose a highly uncertain contingent li...Easy Q02Which of the following bodies is primarily responsible for issuing International Financial Report...Easy Q03Which of the following are the primary responsibilities of the directors of a limited liability c...Medium Q04Titanium Forge Co, a heavy manufacturing firm, recently incurred the following costs: 1. $50,000 ...Medium Q05A company makes a 1 for 4 bonus issue of shares. The nominal value of the shares is $1. The compa...Medium

View all 65 questions →