ExpertMedium2 marksMultiple Choice
ACCA · Question 30 · Preparing basic financial statements
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?
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:
A.
Dr Drawings $600, Cr Sales $600
B.
Dr Drawings $400, Cr Inventory $400
C.
Dr Drawings $400, Cr Purchases $400
D.
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.
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