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Journal entry - withdrawal from bank

ANKIT PUNAMIYA (STUDENT) (94 Points)

31 July 2012

journal entries in the books of mr bipin.(proprietor)

# drew from bank Rs 40000 for his personal purpose

case1) no entry bcoz the business of the proprietor is not related here what is related here is just the bank and he is withdrawing for his personal purpose. for eg if it was written as drew cash/goods for his personal purpose from his business . here he is not withdrawing from his business but from the bank and that too for his personal purpose.

case2) drawings a/c .............dr

to bank a/c

is this correct as we have to assume here that he is withdrawing from his current a/c an d not from his savings A/C

PLEASE TELL ME WHICH ONE IS COORECT WITH REASONS. thank you.

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3 Replies

Tehsinkhan Pathan (CA CMA DISA(ICAI) B.COM) (3956 Points)
Replied 31 July 2012

Drawing / Capital A/c Dr.

To Bank A/c

It does not matter wether is withdrawn from saving ac/ or current a/c. Only important is to see which bank a/c are used in business and disclosed in Balance sheet. Sometimes, proprietors also disclose their saving a/c in Balance sheet.

If Bank A/c is not disclosed in Balance sheet then there is no question of entry..

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ANKIT PUNAMIYA (STUDENT) (94 Points)
Replied 31 July 2012

i agree with u sir than as i read in business entity concept that business transactions are to be segregated from those of personal transactions can u please comment on this. dont mind but i m still in a doubt. i absolutely agree wid ur previous reply can u clarify further further please.

Tehsinkhan Pathan (CA CMA DISA(ICAI) B.COM) (3956 Points)
Replied 31 July 2012

Business Entity Concept:

In accounting, business is treated as separate entity from its owners. Accounts are prepare to give information about the business and not about those who own it. a distinction is made between business transactions and personal transactions. Without such a distinction, the affairs of the business will be mixed up with the private affairs of the proprietor and the true picture of the firm will not be available. The 'Business' and 'owner' are taken as two separate entities. The accountant is interested to record transactions relating to business only. The private transactions of the owner will be recorded separately and will have no bearing on the business transactions. All the transactions of the business are recorded in the books of the business from the point of view of the business as an entity and even the proprietor is treated as a creditor to the extent of his capital.

The concept of separate entity is applicable to all of business organizations. For example, in case of a sole proprietorship business or partnership business, though the sole proprietor or partners are not considered as separate entities in the eyes of law, but for accounting purposes they will be considered as separate entities. In the case of joint stock company, the business has a separate legal entity than the shareholders. The coming and going shareholders don not affect the entity of the business. Thus, the distinction between owner and the business unit has helped accounting in reporting profitability more objectively and fairly. It has also led to the development of 'responsibility accounting' which enables us to find out the profitability of even the different sub-units of the main business.