Accounting for Drawings

 Accounting for Drawings

In this article we would explain the Accounting for drawing. Owner withdrawals from the business for personal use is known as drawing. The drawings concept is more relevant for sole proprietorship and partnership, where owners or partners can draw fund any time for personal use. In case companies, especially in public company , owner can not withdraw money for personal use.

Characteristics of Drawings have been listed below

a)    Drawing is owner withdrawal from business.

b)   Drawings are not expenses.

c)    Drawing would result in equity reduction.

Reasons for Drawings

In sole proprietorship due to full control over the business and decision making, the owner can withdraw funds  for personal use like paying personal utilities bill payment, household.Some of the personal expenditure for which funds may be required are listed below

a)    Paying personal utilities bill.

b)   Paying Children education expenses.

c)    Mirage expenses of children.

d)   Household expenditure.

e)    Purchase of house or vehicles.

Timing of Drawings

Owner can withdraw funds any time , when he needs . Drawing of funds is totally depends on the funds requirement and discretion of owner or partners as case may be . Timing of drawings may be classified as under

a)    Regular drawings to meet monthly expenditure.

b)   Occasional Drawing (as and when funds requires).

Accounting Treatment of Drawings

Drawing is a reduction in the equity, however, drawing are not directly deducted from equity. Initially drawing are charged to as separate account, and then at the reporting date, these drawing are deducted from equity. This scheme of entries have been explained with a a simple example below;

Business investment = 100,000

Partner drawing = 10,000

Pass journal entries and calculate closing equity

Solution

Date	Particulars	Dr.	Cr.
	Drawings A/c	10,000
	Cash A/c		10,000

Date	Particulars	Dr.	Cr.
	Equity A/c	10,000
	Drawing A/c		10,000

Equity Calculation

Particulars	Amount
Equity	100,000
Drawing	(10,000)
Closing Equity	90,000