Are drawings recorded in profit and loss account?
Share
In pursuit to become the world's most used online forum dedicated to Accounting and Finance.
Busiest Accounting and Finance Forum
Lost your password? Please enter your email address. You will receive a link and will create a new password via email.
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
No, drawings are not shown in the statement of profit or loss. By drawings, we mean the withdrawal of cash or goods by the owner of the business for his personal use.
Drawings are actually shown in the balance sheet as a deduction from the capital account.
Let’s take an example, Mr X runs a trading business. For meeting his personal expense we withdrew cash from his business cash of amount Rs. 15,000. It shall be reported like this:
Journal Entries:
Balance sheet:
Profit and loss account reports only the nominal accounts i.e. incomes and expenses. That’s why drawings are not shown in the statement of profit or loss because it is neither an expense nor an income.
It represents the owner’s withdrawal of capital from business for personal use. Hence, the drawings account is a personal account. Drawings lead to a simultaneous reduction in capital and cash or stock of a business which has nothing to do with Profit and loss A/c.
Therefore it is reported in the balance sheet only.