What Are Drawings in Accounting?
What owners take out of the business, and how it is recorded.
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| Normal balance | Debit |
|---|---|
| Effect | Reduces owner’s equity |
| Company equivalent | Dividends |
Drawings in plain English
A sole trader does not receive a salary. Instead the owner takes money out of the business when needed. Because the business and owner are treated as separate under the business entity concept, these withdrawals are recorded as drawings, and they come off the owner’s capital at the end of the year.
Worked example
The owner takes 1,000 from the business bank account for personal use.
| Account | Debit | Credit |
|---|---|---|
| Drawings | 1,000 | |
| Cash | 1,000 |
At year-end, drawings are closed off against capital. If opening capital is 20,000, net profit is 8,000 and drawings are 5,000, closing capital = 20,000 + 8,000 − 5,000 = 23,000.
- Charging drawings to the income statement as an expense. They never affect profit.
- Forgetting goods taken by the owner. Goods for personal use are also drawings, recorded at cost.
Frequently asked questions
Are drawings an expense?
No. They are withdrawals of capital by the owner and are deducted from equity, not from profit.
Is drawings a debit or a credit?
Drawings normally have a debit balance, because they reduce equity.
What is the difference between drawings and dividends?
Drawings apply to sole traders and partnerships. Dividends are paid by companies to shareholders.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.