Owner withdrawal journal entry

Overview

Sometimes, the owner of the company may withdraw the cash directly from the company for personal use without waiting for the dividend payment. Likewise, the company needs to make the owner withdrawal journal entry in order to account for this event.

Owner withdrawal for personal use is not considered an expense on the income statement as the cash outflow is not for business purposes. However, this event will reduce the owner’s equity. Hence, instead of affecting the income statement like those expense or revenue transactions, the owner withdrawal affects the statement of owner’s equity instead.

Owner withdrawal journal entry

The company can make the owner withdrawal journal entry by debiting the withdrawals account and crediting the cash account.

Account	Debit	Credit
Withdrawals	$$$
Cash		$$$

The withdrawals account is a contra account to the capital in the equity section of the balance sheet. Likewise, the normal balance of the withdrawals account is on the debit side. Hence, in this journal entry, both total assets and total owner’s equity on the balance sheet decrease by the same amount.

The balance of the withdrawals account will be cleared to zero at the end of the accounting period with the capital account. In other words, the capital account will be reduced by the amount of owner withdrawals at the end of the accounting period.

Likewise, the company can make the journal entry to clear the withdrawals account at the end of the accounting period by debiting the owner’s capital account and crediting the withdrawals account.

Account	Debit	Credit
Owner’s capital	$$$
Withdrawals		$$$

Owner withdrawal example

For example, on November 15, the owner of the company ABC withdraws the cash amounting to $10,000 from the company for personal use.

In this case, the company ABC can make the owner withdrawal journal entry for the $10,000 on November 15 as below:

Account	Debit	Credit
Withdrawals	10,000
Cash		10,000

In this journal entry, both total assets and total owner’s equity on the balance sheet reduce by $10,000 on November 15.

Later, at the end of the accounting period, the company can clear the $10,000 of the withdrawals account above with the owner’s capital account as below:

Account	Debit	Credit
Owner’s capital	10,000
Withdrawals		10,000

After this journal entry, the balance of the withdrawals account will become zero and the owner’s capital will be reduced by $10,000 at the end of the accounting period.

It is useful to note that the withdrawals account is created to easily keep track of how much and how many times the owner has withdrawn the money from the company. However, sometimes, the company may not have the withdrawals account and doesn’t bother to create one for some reason.

In this case, the company can make the owner withdrawal journal entry by directly debiting the owner’s capital account and crediting the cash account at the time that the owner withdraws the cash from the company.

Account	Debit	Credit
Owner’s capital	$$$
Cash		$$$