What is Drawings In Accounting - Definition - Meaning - Explanation - Example

It is the amount of Cash or Goods (Purchases, Stock) taken away by the Sole Proprietor (Sole Owner) from the business for his own personal use. Such Cash was invested or Goods supplied by the Sole Proprietor but now he wants to use these Assets for his personal use. Examples are Cash Taken by the Sole Owner for Home Use, Business Car Used for his own purpose, etc.

Treatment of Drawings In Final Accounts / Financial Statements

                                     Or

Where Do Drawings Go In The Balance Sheet

Drawing is considered as a Contra Capital Account as it is deducted from Capital of the business in case of Sole Proprietorship. So, it is the reversal or opposite of capital account. The Accounting Treatment of Drawings is that, it is deducted from Closing Balance of Capital on Balance Sheet. The Formula for the calculation of Drawings is derived only from one part of Accounting Equation (Assets = Liabilities + Owner’s Equity).

We know that:

How To Calculate Drawings In Accounting?

Closing Capital / Owners’Equity = Opening Capital + Further Capital Introduced + Net Profit - Drawings

If we simplify the above equation, then we get drawings equation:

Drawings = Opening Capital + Further Capital Introduced + Net Profit - Closing Capital / Owners’Equity

Drawings T Account Or Ledger

It is prepared to record Business Transactions related to it. The Closing Balance is transferred to Capital Account that is the deduction from Ending Balance of Capital. This deduction is also shown on Balance Sheet for Users of Financial Statements.

Drawings Journal Entries

Example: Suppose Mr. A withdrew Cash Rs. 5000 from business for his own use, then following Entry is recorded in the Journal of business as shown below:

                                                     Drawings a/c    5000

                                                                        Cash a/c    5000

(Cash Withdrawn From Business By Sole Proprietor For His Personal Use)

When Goods Worth Rs. 3000 Withdrawn by Mr. A, then:

                                                    Drawings a/c     3000

                                                                       Purchases a/c   3000

(Goods Withdrawn By Sole Proprietor From Business For His Personal Use)

 

Drawings In Accounting What Type of Account?

Drawings Account is the reduction from the capital of the owner utilized for his own personal use, so it does not have any concern with the business. It is the Personal Account of the Sole Owner. We just show it on the Balance Sheet that it is used from the Capital of the Owner. In simple words, you can say that it is of Coapital Account and it deductible from it at the end of the Accounting Period.

The Normal or Usual Balance of Drawings is Debit. However, when it increases, we debit it and when it decreases, we credit it. At the end of the Accounting Period, Drawings Account is closed by transferring it to Capital or Owners’s Equity Account on Balance Sheet.

In case of Sole Proprietorship or Partnerships, the word, ”Drawings" is used but for Companies or Corporations, the word ”Dividend” is used for Drawings. Dividend is the share of profits distributed among the Shareholders annually.

Is Drawings An Asset or Expense or A Liability?

No, it is neither an asset, expense nor it is a liability rather than it is just the withdrawal of Cash invested or Goods supplied by the owner in the business and it has no any concern with the assets of the business, it is the part of Capital and deducted from the Ending Balance of Capital Account on Balance Sheet at the end of the Accounting Period, so it is a Contra Capital Account.

Actually, drawings is the withdrawals of assets from business for the personal use of owners of the business but not as a result of normal or usual or daily working operations of the business while expenses are incurred during ordinary course of the business’ operations. So, we can say that drawings is not an expense account in accounting.

Liabilities are the debts due payable by the business to outsiders while drawings is the withdrawal of the owner who is responsible to provide sufficient funds to the business to run it smoothly.

So, we can say that Drawings is not a Nominal Account but a Personal Account of a Sole Proprietor  and deducted from closing balance of closing capital on balance sheet so it is a contra capital account that shows that amount of Cash or Goods withdrawn by Sole Owner From Business for his Own Personal Use.