Drawing Journal Entry refer to the amount of money or goods, the owner withdraws from the business for personal use. In accounting, it’s essential to record these transactions to ensure the business’s financial records are accurate and up-to-date. Drawings reduce the owner’s equity in the business.
Example Scenario
Let’s assume the owner of a business withdraws ₹10,000 in cash for personal use on 01-07-2024.
Journal Entry
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-07-2024 | Drawings | 10,000 | Owner withdrew cash for personal use | |
| 01-07-2024 | To Cash | 10,000 | Reduction in business cash balance |
Explanation:
- Drawings Account Debit: Increases the drawings account, representing the amount withdrawn by the owner.
- To Cash Account Credit: Decreases the cash account, reflecting the outflow of cash from the business.
Another Example
Let’s assume the owner withdraws goods worth ₹5,000 for personal use on 01-08-2024.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-08-2024 | Drawings | 5,000 | Owner withdrew goods for personal use | |
| 01-08-2024 | To Purchase/ Inventory | 5,000 | Reduction in inventory |
Explanation:
- Drawings Account Debit: Increases the drawings account, representing the value of goods withdrawn by the owner.
- To Inventory Account Credit: Decreases the inventory account, reflecting the reduction in stock due to the withdrawal.
Key Points
- Impact on Equity: Drawings reduce the owner’s equity in the business.
- Account Used: A drawings account is specifically used to track withdrawals by the owner.
- Periodic Transfer: At the end of the accounting period, the drawings account is typically closed by transferring its balance to the capital account, reducing the owner’s equity.