Drawings in case of business refer to the withdrawal of cash or goods by the owner of business for his or her personal use and therefore it needs to be accounted. Drawings are of two types one is when owner withdraws cash from the business and another type of drawing is when owner withdraws goods from the business. Let’s look at the journal entry which are passed in both the cases –
Journal entry when drawings are made in the form of cash
Drawing account Dr
To cash account
Drawing account is debited because it act as a contra account against capital account and at the time of making balance sheet drawings are reduced from capital of the owner and hence this debit balance in drawing account gets even out at the time of making balance sheet, whereas cash is credited because cash has gone out of the business and according to accounting rule credit what goes out.
Journal entry when drawings are made in the form of goods
Drawing account Dr
To Purchase account
Drawing is debited due to same logic as discussed above but purchase account is credited because when goods are purchased the original entry was to debit purchase and since goods have been issued to owner at cost price the purchase account will be credited so as to reduce the purchase figure because stock has gone out of the business and since it is not sold sales cannot be credited
One should keep one thing in mind that drawings are relevant only in case of sole proprietorship or partnership and not in case of a company.