What is Drawings with Example of Journal Entry

Assets in the form of Cash or Goods withdrawn from a business by the owner(s) for their personal use are termed as drawings. They reduce the capital invested in the business by the owner(s) and if goods are withdrawn, they are valued at cost price. If a business is incorporated, they are usually seen in the form of dividends or scrip dividends.

Drawings in case of business refer to the withdrawal of cash or goods by the owner of business for his or her personal use and therefore it needs to be accounted. Drawings are of two types one is when owner withdraws cash from the business and another type of drawing is when owner withdraws goods from the business.

Journal Entry for Drawings

Drawings A/C Debit

To Cash (or) Bank A/C (In case of Money) Credit

To Purchases A/C (In case of Goods) Credit

Purchase account is credited because when goods are purchased the original entry was to debit purchase and since goods have been issued to owner at cost price the purchase account will be credited so as to reduce the purchase figure because stock has gone out of the business and since it is not sold sales cannot be credited

It is a temporary account which is cleared at the end of each accounting year and is not shown as a business expense. Debit balance in the drawing account is closed by transferring it to the capital account. It does not directly affect the profit and loss account in any way.

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