Drawings Journal Entry
Overview
In business, the owner of the company may needs to withdraw money from the company for personal use that is not related to the business operation. In this case, the company needs to make the drawings journal entry in order to account for the drawing activity by owner that should not be recorded as an expense.
In the journal entry, the drawings account will be on the debit side against the cash outflow in the company’s record. This account is a temporary account that will be cleared at end of the accounting period against the capital account if there is no repayment back from the owner.
Drawings journal entry
The company can make the drawings journal entry by debiting the drawings account and crediting the cash account.
| Account | Debit | Credit |
|---|---|---|
| Drawings | 000 | |
| Cash | 000 |
Drawings account is a contra account to owner’s equity in which its normal balance is on the debit side. At the end of the accounting period, if the owner has not made repayment back with either cash injection or his own salary, the company’s capital will be reduced by the amount of the drawings. And the balance of drawings will become zero at the end of the accounting period.
| Account | Debit | Credit |
|---|---|---|
| Capital | 000 | |
| Drawings | 000 |
Drawings example
For example, on November 18, the owner of ABC Ltd. withdraws $15,000 from the company for personal use.
In this case, the company ABC Ltd. can make the journal entry for drawings of $15,000 on November 18, as below:
| Account | Debit | Credit |
|---|---|---|
| Drawings | 15,000 | |
| Cash | 15,000 |
The $15,000 amount in the drawings account will be cleared with the debit to the capital account at the end of the accounting period if there is no repayment back from the owner during the period.
Likewise, the journal entry to clear the drawings account at the end of the accounting period will be the debit of capital account of $15,000 as below:
| Account | Debit | Credit |
|---|---|---|
| Capital | 15,000 | |
| Drawings | 15,000 |
In this journal entry, the capital of ABC Ltd. will be reduced by $15,000 at the end of the accounting period. At the same time, the balance of the drawings account will become zero.