The Drawing Account
Drawings accounting is used when an owner of a business wants to withdraw cash for private use. The bookkeeping entries are recorded on the drawings account.
If for example an owner takes 200 cash from the business for their own use, then the drawings accounting would be as follows:
Journal Entry for Drawings Accounting
The accounting records will show the following bookkeeping entries for the drawings accounting.
Drawings Accounting Bookkeeping Entries Explained
The withdrawal of cash by the owner for personal use is placed on a temporary drawings account and reduces the owners equity. It is not an expense of the business.
Cash is withdrawn from the business and taken by the owner.
The Accounting Equation
The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus equity of the business. This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.
|– 200||=||0||+||– 200|
In this case the asset of cash is reduced by the credit entry as the cash is withdrawn from the business. The drawings account has been debited reducing the owners equity is the business. The owner has effectively withdrawn part of their equity as cash.
The drawings account is a temporary account and is cleared at the end of each year either by a debit against the capital account, repayment by the owner or against the salary of the owner, depending on the circumstances of the original cash withdrawal.
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