CBSE Class 11-commerce Answered

The first step in accounting is to decide what to record i.e. the need to identify the economic events which are to be recorded in the books of accounts. An economic event which involves transactions between an organisation and an outsider is known as external event. An economic event which occurs between the internal wings of an enterprise is known as internal event.

Here, Mr. Sharma has withdrawn Rs. 15,000 from his business to pay the rent of his house. It is the amount withdrawn by Mr. Sharma, the proprietor, for his personal use. Drawings reduce the investment i.e. capital of the owners and hence should be recorded in his books of account.