What is Drawing? Meaning, Features, and More.

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In any business, the owner’s investment plays a very important role as it is used to set up and run the business but when the business owner needs the asset for personal use then they withdraw from the business which is called drawing but keep in mind that the definition, terms and conditions of withdrawal, etc. can be different for each business form.

Often the term withdrawal is heard or seen in sole proprietorship, partnership firms, etc. This is because in these businesses the withdrawal made by the owner is called drawing. In simple words whatever the owner invests in the business is shown as capital and whatever the owner withdraws from the business is shown as drawing.

What is Drawing?

Drawing refers to the assets withdrawn from the business by the business owner for personal use. In simple words, whatever the business owner withdraws from the business for personal use is called a drawing. It is mostly used in sole proprietorship and partnership firms, and it reduces the owner’s share (capital) in the business and the liability of the business. Due to drawing, the owner’s share in the business is reduced because the withdrawal is done by the owner himself, and the liability of the business is reduced because the owner’s share is a liability for the business.

Drawing is neither an asset nor a liability for the business as it is used only to show the asset withdrawn by the business owner for personal use. Drawing in the business is managed by a drawing account and is shown in the balance sheet at the end of each year under capital on the liability side. Note: The salary of the owner will not come under drawing as salary is a nominal expense for the business which is shown on the debit side of the profit and loss account.

Features of the Drawing

Following are the features of the drawing:

1. Withdrawal:

This refers to the withdrawals made by the business owner for personal use and is managed through the drawing account. Note: This does not include the salary of the business owner as salary does not come under withdrawal. In simple words, when the business owner makes a withdrawal from his share, it comes under withdrawal.

2. Reduce Capital:

It reduces the capital because it is subtracted from the capital because when the owner of a business invests assets in the business, capital increases, and when he withdraws assets from the business for personal use, capital decreases. This happens because the capital represents the owner’s share/investment in the business.

3. Drawing Account:

Drawings are managed through a Drawing Account and after a particular period, the balance is transferred to a Capital Account. Generally, the balance of the Drawing Account is transferred at the end of the financial year. Note: Personal Account rules apply to the Drawing Account as the Drawing Account is a represented personal account.

4. Balance Sheet:

It is shown on the balance sheet under capital on the liability side. The purpose of showing it in the balance sheet is to show the assets withdrawn from the business by the business owner for personal use, another purpose is to show how many assets the business owner has withdrawn from the business in a financial period.

5. Reduce Liability:

It reduces the liabilities of the business because it is subtracted from the capital which is a liability for the business and when the capital reduces, the liabilities also reduce. Note: When the liabilities reduce, the assets also reduce because liabilities and assets are equal to each other.

Read Also:

• What is Capital? Meaning, Features and More.
• Rule of Debit and Credit

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