How to Increase a Drawing Account
A drawing account is defined as a type of account used for expenses and withdrawals by a business. It can be used to track funds that are withdrawn from the business for the benefit of the owners of the business. It's useful for small business owners, freelancers or entrepreneurs attempting to keep the finances of their business separate from their personal finances.
When composing the financial statements, it will appear on the balance sheet, as a contra-equity account, meaning it is held against the current total of shareholders' equity. The drawing account represents a withdrawal from the company, instead of an investment in the company that would normally be represented by shareholders' equity.
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Instructions
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Compose the credit side of a journal entry by entering a credit to the cash account for any transfers to the drawing account during the year or period.
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Complete the debit side of a journal entry by entering a debt to the drawing account for any transfers to the drawing account during the year or period. This represents the amount withdrawn from the operations of the business.
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At the end of the period or year, add together all of the debits to the drawing account. Compose a credit entry to the drawing account for this amount and a debit entry to owner's equity. After this transaction, the balance of the drawing account will be zero. Drawing accounts are only temporary, and are closed at the end of the period when the journal entry is done to move funds to owner's equity.
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Tips & Warnings
If there is more than one owner, keep separate entries for each partner. In this case, compose a statement of owners' equity at the end of the period to reflect the owners' ongoing investment.
References
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