What is Drawing in Accounting

What is Drawing in Accounting

What is Drawing in Accounting

A drawing refers to the act of the owner(s) withdrawing cash or assets from the company for personal use.

Example of Drawing:

An Owner withdraws the money from the business for their house rent.

A drawing account is a financial record that shows money borrowed by the owner from a business for personal use. A drawing account is typically used for sole proprietorships or partnerships.

A drawing account is a contra account to the company owner’s equity; whenever the owner withdraws cash or inventory from the business for his personal use. In a general journal, we will debit the drawing account and credit it to the cash or inventory account in the same amount.

Drawings accounts are temporary records that may be balanced at the end of a fiscal year or duration. This can be cleared in a number of ways, with the sum credited to the owner’s equity account and re-established in the new financial year.

Is Drawing an Asset or a Liability?

The cash or inventory withdrawn from the company by the proprietor for his own personal use is referred to as a drawing. Since the proprietor withdraws from his capital, it cannot be declared as a liability or an asset. Drawing is actually a deduction that is withdrawn from the capital by debiting the capital account.

Journal Entry of Drawing:

A drawing account journal entry consists of a debit to the drawing account and a credit to the cash account. A journal entry of closing an owner’s drawing account requires a debit to the owner’s capital account and a credit to the drawing account.

For Example:

Owner withdraws $5000 from business for personal use.

xxxDrawing 5000 
     Cash  5000
 (To record owner withdraw cash for personal use)   

To close a drawing account, the journal entry will be:

xxxCapital 5000 
  Drawing  5000
 (Balance transfer to owners capital account)   

What are the Advantages of Using a Drawing Account in Accounting?

There are several benefits to using drawing in accounting. First, drawings provide a way for business owners to withdraw money from their businesses for personal use. This can help business owners maintain a separation between their personal and business finances.

Second, drawings can be used to track the amount of money that has been withdrawn from the business. This can help business owners keep track of their expenses and make sure they are not withdrawing more money than they should be.

Is drawing owner’s equity?

Drawings are owner’s equity. When an owner takes money out of the business for personal use, it is called a drawing. The owner’s equity is reduced by the amount of the drawing.

Is the owner’s drawings an expense?

The owner’s drawings are not an expense. They are a withdrawal of cash or other assets from the business for the owner’s personal use.

Are drawings in the profit and loss account?

Drawings are not included in the profit and loss account.

What are the drawings in the cash book?

A drawing is an amount of cash taken out of the business for personal use. It is typically recorded in the cash book as a debit against the owner’s capital account.

We also have:

What are Assets in Accounting?

What are Liabilities in Accounting?

What is Capital in Accounting?

What is Account Receivable?

What is Account Payable?

For more click here and if you are looking for full forms of different acronyms and words then check out this list you really gonna find this helpful. We also have an Essay on every topic, Check the complete list here. If you are Studying in Matric Free Video Lectures of MathsPhysics and English are here, and we have got you covered for I.COM Business Maths also. For What is Capital in Accounting? Click here or for What is an Income? Click here.