Assets in the form of Cash or Goods withdrawn from a business by the owner(s) for their personal use are termed as drawings. They reduce the capital invested in the business by the owner(s) and if goods are withdrawn, they are valued at cost price.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.
Journal Entry for Drawings
|To Cash (or) Bank A/C (In case of Money)||Credit|
|To Purchases A/C (In case of Goods)||Credit|
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.
What Type of Account is Drawings and Where is it Shown in Financial Statements?
It is a Personal A/C which is reduced from the capital. It is shown in the balance sheet on the liability side as a reduction in capital.
>Read What is Capital?