Drawings - What are Drawings?
Drawings refers to the act of withdrawing cash or assets from the company by the owner(s) for personal use
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Drawings can occur by withdrawing cash from a business account, but can also include anything that is considered a business asset, such as products or equipment that is removed from the business for personal use by the owners.
Any type of drawings reduce the capital or owner’s equity of a business, so it is important to keep track of these drawings and manage them within your accounts. However, drawings are not considered a business expense.
How to manage drawings in your business accounts
Drawings by the owner of the company will need to be recorded in the balance sheet as a reduction in the assets and a reduction in the owner’s equity as an accounting record needs to be maintained to track money withdrawn from the business by its owners.
An account is set up in the balance sheet to record the transactions taken place of money removed from the company by the owners. This is known as the ‘drawing account’. In the drawing account, the amount withdrawn by the owner is recorded as a debit. If goods are withdrawn, the amount recorded is at cost value.
Drawing accounts and balances
When a drawing is made, in the double-entry bookkeeping system, a credit should offset the debit in the drawing account. This credit typically goes in another account - in most cases, the cash account.
As clearly outlined in the system for double-entry bookkeeping, one of the golden rules of accounting is: 'Do not go to bed before the debits equal the credits'.
Keep in mind that drawings are not to be confused with expenses or wages for the owners as these will be recorded in the company profit and loss account separately.
Drawing accounts and Debitoor
In Debitoor, you can use the banking tab to customise your accounts and keep track of business expenses and more. You can easily create a drawing account with a negative balance, which will be included in your financial reports.
You can then make payments to the drawing account if necessary. Because Debitoor offers a built-in system for balancing the credits & the debits, it’s not necessary to make any additional entries to mark the drawings.