Accountancy · Ch 1 — Introduction to Accounting
Drawings
Drawings
Drawings
When the owner withdraws money or goods from the business for personal or household use, that withdrawal is called drawings. The key idea is that the business and the owner are separate entities in accounting — so when the owner takes assets out of the business, it reduces the business's claim on those assets.
Drawings directly reduce the owner's capital (investment) in the business. If the owner had put in ₹1,00,000 and then withdrew ₹10,000 for personal expenses, the net investment left in the business is only ₹90,000.
Accounting treatment of drawings
Drawings are recorded on the debit side of the owner's capital account. Why? Because capital has a credit balance (it is a liability of the business to the owner), and a debit entry reduces that balance.
The journal entry for drawings is:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Drawings A/c … Dr. | (amount) | |||
| To Cash/Bank A/c (or Purchases A/c, if goods) | (amount) |
At the end of the accounting period, the drawings account is closed by transferring its balance to the capital account:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Capital A/c … Dr. | (amount) | |||
| To Drawings A/c | (amount) |
Types of drawings
Drawings can be of two kinds:
- Cash drawings — the owner takes money out of the business bank account or cash box.
- Goods drawings — the owner takes inventory (stock) for personal use. In this case, the credit is to the Purchases account (or Stock account), because the goods are no longer available for sale.
Drawings reduce the owner's capital. They are not an expense of the business — they are a distribution of the owner's own investment. Therefore, drawings never appear in the Profit & Loss Account; they appear only in the Balance Sheet (as a deduction from capital) or in the Capital Account itself.
Effect on the accounting equation
The accounting equation is:
Assets = Liabilities + Capital
When the owner withdraws cash, assets (cash) decrease. To keep the equation balanced, capital also decreases by the same amount. The same logic applies when goods are withdrawn — assets (stock) decrease, and capital decreases. …