Understanding drawing in accounting
What is drawing? and how to maintain drawing in accounting? The simple meaning of drawing is that when some item or cash is taken out of the business by the owner of the businessman, then it is known as drawing. Drawing is a type of representational personal account. When a person starts a new business, capital is invested in the business by him. But when an item or money is taken out of business by the same person for his personal use, then in business it is called drawing.
What is drawing in accounting for example?
In accounting, drawing is always included in the capital group, to understand drawing, first you need to understand the Separate Entity Concept. According to the Separate Entity Concept, businessmen and businesses are different in any business. According to the concept, the accounts of both are also maintained separately in the business. For this, I will explain to you by giving an example of a company.
200,000/- capital invested by ABC in a business. In this situation Rs. 20000/- are assets for ABC as money has been invested by ABC. But this is a liability for business because money has come from ABC in business and there is a liability for business to return this money to ABC. If any amount is taken by ABC from business for its personal use, then the money taken is called drawing. And ABC has this liability that the money taken from the business should be returned to the business.
Drawing Entry example in tally
Capital is invested in the business by a person and it is common for a person to withdraw money for his personal use. Let us understand with an example. If Rs 10,000/- is received by ABC from the business for his personal use, then you have to keep in mind that when someone’s liability increases, there is credit. And if the liability of any person or company is less then it is debited. If you have received Rs. 10,000/- from business by ABC, then in this case drawing will be debited from Rs. 10,000/- and cash will be credited with 10,000/-. When this money is returned by the person in business, then the time cash will be debited and the drawing will be credited. Drawing will be debited while withdrawing money in any business.
What is the difference between capital and drawings?
The word capital means money invested by any person or organization in business. When any person invests capital in the business, then he aims to earn more capital. He wants to earn maximum profit instead of investing capital. But drawing is the opposite. Drawing is called that item, money, or assets that the owner of the business removes from the business for his personal use. Drawing is the person’s liability which he has to pay. This type of transaction is common in business. There can be any person or organization applying capital who invests his capital in the business to start his business. But if the same capital is taken out by the person later, then it is called drawing.