what is drawing in accounting

Drawing in accounting refers to the act of taking money or other assets out of a business by its owners. A drawing account is a record kept by a business owner or accountant that shows how much money has been withdrawn by business owners. It is essential to keep accurate records of these withdrawals because they need to be offset against the owner’s equity. A drawing account acts as a contra account to the business owner’s equity, and an entry that debits the drawing account will have an offsetting credit to the cash account in the same amount. Drawings in accounting terms represent withdrawals taken by the owner, and it will impact the company’s financial statement by showing a decrease in the assets equivalent to the amount that is withdrawn. Drawings will also show up on a statement of cash flows as they represent a type of financial activity and so need to be accurately recorded by the company’s account departments. A drawing account covers all assets, not just cash, and it is closed out at the end of each year, with the balance transferred to the owner’s equity account, and then reestablished in the new year. Drawings are not the same as expenses or wages, which are charges to the firm, and they are recorded as a reduction in the owner’s equity as well as in the assets.