Drawings Example: 
Journal Entry


Previous lesson: Asset Example 
Next lesson: Income Example



In this second run-through of the drawings example we're going to delve deeper and work out the full journal entry.

For the earlier, simpler lesson on this transaction without the journal entry, where we just go over which accounts are affected and what the effect on the accounting equation is, see the first lesson on the drawings example.

Capital vs Drawings

drawings owner's equity

Just as the owner can invest assets in the business from his personal possessions – so too can he remove assets from the business for personal use.

Remember that the investment of assets in a business by the owner is called capital

When the owner removes assets from his business, we call this by another name. We call this drawings.

This is because the owner withdraws assets.

Drawings are the exact opposite of capital.


Drawings Example and Journal Entry

Okay, so let's look at our original drawings example:

d) George Burnham is running short of cash at home. He needs some money to buy his daughter a bicycle for her birthday (i.e. for personal use). He decides to withdraw $500 from the business bank account. What is the impact on the equation for George’s Catering? 

drawings example - assets and equity decreasing

So, what has happened here?

First of all, bank has now decreased by $500.

As with the previous example, when an asset decreases, that asset is credited, as assets increase on the debit side and decrease on the credit side.

The owner‘s stake in the assets (owner's equity) has also decreased.

The owner’s equity increases on the credit side. Therefore, the owner’s equity decreases on the debit side.

So what do we do with the owner’s equity? We debit it.

The accounting entry is: 

journal entry drawings owner's equity

This transaction is the exact opposite of our owner's equity example (capital), where Mr. Burnham put assets into the business.

By the way, in the entry above we theoretically could have debited capital (this would show that it is decreasing). 

However, drawings is the account used and debited when assets are taken out by the owner.

We keep the capital account as one account for investments in the business by the owner, and drawings as a separate account - for disinvestments or withdrawals by the owner.

In summary, it is quite apparent that:

For every transaction there are two entries.
For every transaction there is a debit.
For every transaction there is a credit.
There are no exceptions.


The Accounting Equation

It should also be quite apparent that the debits and credits are based wholly on the above accounting equation.




If you feel good about the drawings example above, then go ahead and move on to the next lesson - the cash income example.




Return from Drawings Example: Journal Entry to Double Entry Accounting 

Return from Drawings Example: Journal Entry to Home Page 






Previous lesson: Asset Example 
Next lesson: Income Example



Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

Journal Entry Question - Cash Drawings 
Complete the journal entry for the following: Business experienced a withdrawal of cash by the owner.

Journal Entry Question
(Complex Owner Drawings)
 
How do I do the double entry for this? Alex withdrew $100 cash and took goods costing $100 (selling price was $150) for personal use.

Journal Entry for Drawings? 
What is the journal entry for this transaction? Owner withdrew office equipment from business $ 800

Using owner's money to pay business utility bills 
Q: If the owner pays some phone and electricity bills for home RM215 and office RM323 by using her saving money, what would the double entry be? Is …


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