If the owner takes goods for their own use, the journal to record this under the periodic inventory system would:

If the owner takes goods for their own use, the journal to record this under the periodic inventory system would:

A. Debit Drawings, credit Purchases

B. Debit Purchases; credit Drawings

C. Debit Drawings; credit Merchandise inventory

D. Debit Sales; credit Merchandise inventory

Answer: A. Debit Drawings, credit Purchases

In a periodic inventory system, when an owner uses the company’s products, he or she is allowed to take them for personal use and it is considered a withdrawal. This transaction is journalized by debiting the Drawings account and crediting the Purchases account. The Drawings account refers to the amount that the owner has taken out from the business and since it is a deduction in the owner’s capital, it decreases the owner’s equity. Crediting Purchases make a significant contribution to the overall cost of goods that are for sale since these goods are not permanent materials that are required in running the business. This method also provides a true and real figure of the decrease in business assets (inventory) as well as the true reduction in owner’s equity. As a result, it is relevant to understand that, unlike in the case of an irregular system, the Merchandise Inventory account is adjusted only at the end of each accounting period, not at the time of individual transactions. This procedure does not wreck the accounting records for the firm but also ensures any equipment used by the owner for his or her work is legally charged.