A drawing account is a temporary equity account used to record withdrawals made by an owner or partner for personal use. It is most common in sole proprietorships and partnerships, where owners take draws instead of earning wages as employees.
The key accounting point is that a draw is not an operating expense. It reduces owners’ equity, not current-period profit.
How it works
When the owner withdraws cash or another asset, the draw is recorded against equity:
1Dr Drawing Account
2Cr Cash / Inventory / Other Asset
At period end, the drawing-account balance is closed into the relevant capital or ownership account.
Why it matters
- separates personal withdrawals from business expenses
- preserves cleaner profit measurement in the profit and loss account
- shows how much value owners have taken out of the business during the period
- supports clearer partnership and proprietor record-keeping
Drawing account vs. salary
- Drawing account: owner withdrawal, reduces equity
- Salary or wage expense: compensation cost, reduces profit
That distinction matters because misclassifying drawings as expenses can distort both tax and reporting results.
- Owners’ Equity
- Equity Account
- Debit
- Profit and Loss Account
FAQs
Does a drawing account affect net income?
No. Drawings reduce owner equity, not revenue or expense, so they do not directly affect net income.
Do corporations use drawing accounts?
Usually no. Corporations generally distribute value through salaries, dividends, or share repurchases rather than owner draws.
Is a drawing account permanent?
No. It is typically a temporary account closed into the owner’s capital or equity balance at period end.