How do drawings affect the financial statements?

Definition of Drawings

Drawings are the withdrawals of a sole proprietorship's business assets by the owner for the owner's personal use.

The drawings or draws by the owner (L. Webb) are recorded in an owner's equity account such as L. Webb, Drawings; L. Webb, Draws; or L. Webb, Withdrawals. The other part of the entry will reduce the specific business asset.

Example of Drawings

If the owner (L. Webb) draws $5,000 of cash from her business, the accounting entry will be a debit of $5,000 to the account L. Webb, Drawings and a credit of $5,000 to the account Cash.

Effect of Drawings on the Financial Statements

The owner's drawings will affect the company's balance sheet by decreasing the asset that is withdrawn and by the decrease in owner's equity.

The owner's drawings of cash will also affect the financing activities section of the statement of cash flows. (If an asset other than cash is withdrawn, it is reported as supplemental information on the statement of cash flows.)

The income statement is not affected by the owner's drawings since the drawings are not business expenses.

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