Drawings in accounting refers to funds/money taken by the owner out of the business. This can be taking funds out of business or incurring personal expenses using business resources.

It’s important to note that transactions with the owner are recorded in the equity section. Whether funds are deposited or taken out, all transactions with the owner are posted/presented in the equity section of the balance sheet.

From an accounting perspective, taking drawings out of the business or paying dividends is the same. In both situations, cash is credited, and equity is debited in the accounting records. Let’s go through accounting to record the drawings taken out of the business.

Accounting for taking out drawings

The following journal entry is posted in the accounting record when the owner draws funds from the business.

Description	Debit	Credit
Drawings (equity)	XXX
Bank		XXX

The debit impact of this transaction is reducing equity, as the owner took out some funds/equity from their business. Hence, we need to reduce the equity as it was taken out of the business.

On the other hand, credit impact reduces cash balance as it is taken from the business assets. There can  be other business resource other than cash like inventory.  

Further, it’s important to note that if the owner injects money into the business, equity is increased by credit and bank by debit.

Is drawing debit or credit in the accounting books?

The drawing is a debit for the equity account. Every time the drawing is made, equity reduces in the balance sheet. However, if the owner injects funds into the business, equity is increased.

Is drawing expense for the business?

No, drawing is not a business expense. It’s an outflow of equity, as the owner has taken this fund/money/resources out of the business. Hence, payment is not recorded in the profit and loss statement but in the equity section of the balance sheet.

How is the drawing posted in the accounting books?

The equity section of the balance sheet reflects all transactions with the business owner, including drawings.

Conclusion

Drawing in accounting refers to the owner’s act of taking funds/resources out of the business. All transactions with the owner, including drawings, are included in the equity section of the balance sheet.

Drawing is not a business expense and is not recorded in the profit and loss account. Instead, this transaction is posted in the equity section of the balance sheet.

From an accounting perspective, dividends and drawings are the same, as both are debited in the equity section and credited to the cash balance.