Similarities & Differences Between Capital And Drawings

Capital is the amount invested in the business in order to further grow it or which is invested in the business to start a new business. The term capital is used in case of Sole Proprietorship and Partnership while the term “Equity” is used in case of company or corporation while Drawings is the withdrawals by the owners of the business from the business for personal use. It is a Contra Equity Account which is deducted from the Capital or Equity of the business.ads

The capital is a personal account and it is an internal resource for the business while recording of drawings account is not to be considered as a Business Transaction rather than it is concerned only with the personal transaction of the owners of the business according to Business Entity Concept.

Difference Between Capital Withdrawal And Drawings

In case of drawings, both Assets Accounts (e.g.,Cash and Stock) and capital account are affected i.e., these are decreased, while in case of capital account, only cash and capital account are affected i.e, these will be decreased.

Drawings are made by sole proprietor from time to time on temporary basis when he needs finance to meet his personal expenses while capital withdrawal are made on permanent basis.

Similarities Between Capital And Drawings

Both are used to finance either the business or the sole proprietor himself i.e., the capital is used to finance the business while drawings is used by the sole owner to finance for his own personal use.

Both are necessary in order to either run the business or for sole proprietor to meet his daily personal expenses.