Drawings mean the certain sum of amount or goods withdrawn by owners from the business for personal use. The drawings account is not an asset/liability/expense/income account, it is a contra account to the owner's equity or capital account. Drawings A/c will always have a debit balance. Drawings A/cRead more
Drawings mean the certain sum of amount or goods withdrawn by owners from the business for personal use. The drawings account is not an asset/liability/expense/income account, it is a contra account to the owner’s equity or capital account. Drawings A/c will always have a debit balance.
Drawings A/c debit balance is contrary to the Capital A/c credit balance because any withdrawal from the business for personal use will reduce the capital.
Effect on Trial Balance: Drawings will be shown in the debit column of the trial balance.
Effect on Financial Statements: The owner’s drawings will affect the company’s balance sheet by decreasing the asset that is withdrawn, and a corresponding decrease in the owner’s equity or capital invested.
Example:
Mr.B a sole proprietor withdraws $100 each month for personal use. At the end of the year Drawings A/c had a debit balance of $1,200.
Mr.B records drawings of $100 each month and debits drawings a/c and credits cash a/c. At the end of the year, he will transfer the balance and will debit capital a/c and credit drawings a/c by $1,200.
He will show a balance of $1,200 ($100*12) in the trial balance in the debit column. Assuming closing capital of $50,000.
In the financial statement, the balance of drawings a/c will be deducted from the owner’s capital because it is a contra account and this will reduce the owner’s capital for the year.
Drawings mean the certain sum of amount or goods withdrawn by owners from the business for personal use. The drawings account is not an asset/liability/expense/income account, it is a contra account to the owner's equity or capital account. Drawings A/c will always have a debit balance. Drawings A/cRead more
Drawings mean the certain sum of amount or goods withdrawn by owners from the business for personal use. The drawings account is not an asset/liability/expense/income account, it is a contra account to the owner’s equity or capital account. Drawings A/c will always have a debit balance.
Drawings A/c debit balance is contrary to the Capital A/c credit balance because any withdrawal from the business for personal use will reduce the capital.
Effect on Trial Balance: Drawings will be shown in the debit column of the trial balance.
Effect on Financial Statements: The owner’s drawings will affect the company’s balance sheet by decreasing the asset that is withdrawn, and a corresponding decrease in the owner’s equity or capital invested.
Example:
Mr.B a sole proprietor withdraws $100 each month for personal use. At the end of the year Drawings A/c had a debit balance of $1,200.
Mr.B records drawings of $100 each month and debits drawings a/c and credits cash a/c. At the end of the year, he will transfer the balance and will debit capital a/c and credit drawings a/c by $1,200.
He will show a balance of $1,200 ($100*12) in the trial balance in the debit column. Assuming closing capital of $50,000.
In the financial statement, the balance of drawings a/c will be deducted from the owner’s capital because it is a contra account and this will reduce the owner’s capital for the year.
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