What is the journal entry for cash withdrawal?

Journal Entry for Cash Withdrawal

In the realm of accounting, cash withdrawal transactions involve the physical removal of funds from a company’s bank account. To accurately reflect this transaction and maintain the integrity of financial records, a corresponding journal entry must be made.

Accounting Treatment

The following journal entry is used to account for a cash withdrawal:

Debit: Cash
Credit: Bank

Explanation

Debit to Cash Account:

• This debit records the decrease in cash on hand as a result of the withdrawal.
• Cash is an asset account, and debits increase asset account balances.

Credit to Bank Account:

• This credit reflects the decrease in the company’s bank balance due to the withdrawal.
• Bank is a liability account, and credits increase liability account balances.

Impact on Financial Statements

• Balance Sheet: The cash withdrawal reduces both the bank balance (liability) and the cash on hand (asset).
• Income Statement: Cash withdrawal transactions do not directly impact the income statement.

Example

Suppose a company withdraws $1,000 from its bank account. The journal entry would be:

Debit: Cash $1,000
Credit: Bank $1,000

This journal entry accurately records the outflow of funds and maintains the accounting equation (Assets = Liabilities + Equity). By reducing the bank balance and increasing the cash on hand, the accounting records reflect the change in the company’s financial position.

Conclusion

The journal entry for cash withdrawal is essential for ensuring proper accounting records and providing a clear picture of the company’s financial transactions. It ensures that both cash on hand and bank balances are accurately recorded to reflect the outflow of funds from the company’s banking institution.