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Drawing of Service

27 May 2020

How to do accounting for drawing of service....
suppose I run Hotel.... here if i stay for 5 days which is 2000 for per day....
As i am owner.... soits my drawing of services....
how to account the same?....
kindly clarify the same...

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2 Replies

CA Raj Doshi (Practising CA) (8903 Points)
Replied 28 May 2020

Since there is no money involved , it is not possible to record such entry.

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Asha Kanta Sharma (Manager - Finance & Accounts) (36300 Points)
Replied 08 August 2024

When you, as the owner of a business, use the company's resources for personal use—such as staying at your hotel—you need to account for this as a "drawing of services." Here’s how to handle the accounting for such transactions:

### Accounting for Drawings of Services

1. **Determine the Value of the Services Used:**
- **Service Used:** 5 days of stay
- **Rate per Day:** Rs 2,000
- **Total Value of Services Used:** 5 days × Rs 2,000/day = Rs 10,000

2. **Record the Drawings of Services:**
The drawing of services should be recorded as a reduction in the owner’s equity. This reflects that the owner is withdrawing value from the business for personal use.

3. **Accounting Entries:**

- **Debit:** Drawing Account (for the owner’s equity)
- **Credit:** Income or Revenue Account (to reflect the decrease in revenue or profit due to personal use)

Here’s how you can make the accounting entries:

**Journal Entry:**
- **Debit:** Drawings Account (Owner’s Equity) Rs 10,000
- **Credit:** Income Account (or Revenue Account) Rs 10,000

This entry acknowledges that the value of the services used by the owner is effectively a withdrawal from the business, reducing the profit or income.

### Explanation

- **Drawings Account (Owner’s Equity):** This account reflects the withdrawals made by the owner. Increasing the Drawings Account reduces the owner’s equity.
- **Income Account:** This reflects the reduction in income or revenue due to the fact that the hotel did not actually earn this revenue from a third party.

### Financial Statement Impact

- **Balance Sheet:** The Drawings Account will reduce the owner’s equity, showing a lower net worth of the business due to personal withdrawals.
- **Profit and Loss Account:** If you credit an Income Account, it would adjust the total income to reflect the personal use of services, but this is less common. Alternatively, some businesses might not directly adjust income and instead adjust the Drawings Account without impacting reported income.

### Conclusion

By making these entries, you ensure that personal use of business services is appropriately accounted for and reflects the impact on both the owner’s equity and the business's financial position.