Definition of Owner's Draws
Owner's draws are withdrawals of a sole proprietorship's cash or other assets made by the owner for the owner's personal use. The account in which the draws are recorded is a contra owner's capital account or contra owner's equity account since its debit balance is contrary to the normal credit balance of the owner's equity or capital account.
The title of the account for recording R. Smith's draws from his or her business is R. Smith, Drawing or R. Smith, Withdrawals. This account is a temporary account because its balance will be closed at the end of each year. However, the account's debit balance is closed directly to the owner's capital account. (The owner's draws are not reported as an expense on the company's income statement.)
Example of Owner's Draws
Let's assume that R. Smith, the owner of a sole proprietorship, withdraws $2,000 each month for the owner's household expenses. The company's entry to record each month's draws will be:
- A debit to R. Smith, Drawing (an owner's equity account with a debit balance)
- A credit to Cash