What are Drawings in Accounting?

Drawings in accounting refer to the money or assets that a sole trader or business partner withdraws from their business for personal use. They are not a business expense and reduce the owner’s equity, not the profit.

This guide explains what drawings are in accounting, their meaning, whether drawings are assets or liabilities, how to record them correctly and how drawings are treated for UK tax purposes.

Quick Summary: Drawings in Accounting

• Drawings mean money or assets withdrawn by the owner for personal use
• Not business expenses
• Neither an asset nor a liability they are a contra-equity account that reduces owner’s equity
• Not directly taxable in the UK
• Limited companies cannot take drawings
• Recorded as: Debit drawings account / Credit cash or bank

Introduction to Drawings in Accounting

Drawings in accounting are a type of transaction that is used to represent the drawing of money out of business for personal or non-profit use. Small business owners, sole proprietors and partnership members often use this transaction. Drawings in accounting can also be used in larger businesses, but they are usually not used as often as in smaller companies.

Drawing accounts usually work year to year, meaning that they are temporary. A drawing account should be closed at the end of each year, with its balance transferred to the owner’s equity account and re-established in the new year. Accurate recording of these can help balance the books perfectly at the end of each financial year.

For several reasons, it is essential to keep accurate records of drawings in accounting transactions. Two of the essential benefits of recording drawings in accounting are:

They offer a great way to track the cash flow of a business. By monitoring the amount of money being taken out of the company, business owners can better understand the financial health of their business. This can be especially beneficial for small business owners needing access to more sophisticated financial tracking systems.

Another advantage of drawings in accounting is that one can use them to help business owners understand their taxes. By keeping track of the amount of money being taken out of the business, business owners can more accurately calculate the amount of taxes they owe. This can be especially helpful for small business owners who may need to become more familiar with the tax laws.

Types of Drawings in Accounting

There are two main types of drawings in accounting: capital drawings and drawings for personal use.

• Capital drawings are withdrawals from the business used to purchase assets or other long-term investments. This type of drawing is usually used by business owners looking to reinvest their profits into the business.
• Drawings for personal use are withdrawals from the business that are used for personal expenses. This type of drawing is usually used by business owners looking to cover their personal expenses or purchase assets for personal use.

Remember that a drawing account does not only include cash. It covers all assets, so even if a business owner wants to withdraw equipment from the office for personal use, it is recorded here.

How do you record Drawings in Accounting?

Drawings are recorded as:

• Debit: Drawings account
• Credit: Cash or bank account

At the end of the accounting year, the drawings account is closed and transferred to the owner’s capital account.

Journal entry example:

Here is a simple example to show how drawings are recorded.

John runs a sole trader business. On 1 August 2025, he takes £2,000 out of his business bank account for personal use.

The journal entry would be:

At the end of the financial year, John’s total drawings are transferred to close the drawings account:

This reduces John’s capital balance on the balance sheet. His drawings do not appear on the profit and loss statement and do not reduce his taxable profit.

What if the owner takes goods instead of cash? The same rule applies debit the drawings account and credit the stock or inventory account at cost price.

Are Drawings a Debit or Credit?

Drawings are always recorded as a debit in the drawings account. Here is why:

The drawings account is a contra-equity account, which means it holds the opposite balance to the owner’s capital account. The capital account has a credit balance because it represents what the business owes the owner.

When the owner withdraws funds, it reduces that equity so the drawings account is debited. The cash or bank account is credited because the business’s cash balance reduces.

A simple rule to remember:

• Drawings account → always DEBIT
• Cash / Bank account → always CREDIT

At the end of the year, when the drawings total is transferred to the capital account, the capital account is debited and the drawings account is credited to bring it to nil.

Are Drawings an Asset, Liability or Equity?

A common question about drawings in accounting and one that is often misunderstood.

Drawings are neither an asset nor a liability. They are a contra-equity item meaning they reduce the owner’s capital (equity).

On a balance sheet, the drawings account is listed under the equity section as a negative value, which reduces the total owner’s equity.

Owner’s Equity

Conclusion

Drawings in accounting are an important concept to understand if you are a small business owner or sole trader. In this guide, we have covered what drawings are, why it is important to record them, the different types of drawings and how to record them correctly.

Before you withdraw money or assets from your business, it is worth making sure you understand how drawings work. Withdrawing too much can weaken your financial position over time.

If you need help with bookkeeping, managing owner drawings, or preparing end-of-year accounts, Outbooks can help. Our UK-based accounting team supports sole traders, partnerships and limited companies.

Frequently Asked Questions

Are drawing accounts an asset or a liability?

Drawing accounts are neither an asset nor a liability. They are a contra-equity account that reduces the owner’s capital in the business.

Are owner drawings an expense?

No, owner drawings are not a business expense. They are personal withdrawals and are not tax deductible.

Are drawings part of owner’s equity?

Drawings are not equity themselves but reduce the owner’s equity. They are recorded as a deduction from the capital account.

Are drawings taxable in the UK?

Drawings are not directly taxable in the UK. Sole traders and partners are taxed on business profits, not on the amount they withdraw.

Do drawings count as business expenses?

No, drawings are not business expenses and cannot reduce your taxable profit.

How are drawings recorded in bookkeeping?

Drawings are recorded by debiting the drawings account and crediting the cash or bank account. At year-end, they are transferred to the owner’s capital account.

Can a limited company take drawings?

No, limited companies do not use drawings. Company owners take money through salary, dividends, or director’s loans.

What is the difference between drawings and salary?

Drawings are taken by sole traders or partners and are not treated as expenses. Salary is paid to employees or directors and is a business expense subject to PAYE and National Insurance.

Where do drawings appear on the balance sheet?

Drawings appear as a deduction from owner’s equity in the capital section of the balance sheet. They are not shown on the profit and loss account.

Are drawings debit or credit?

Drawings are recorded as a debit because they reduce the owner’s equity, while the cash or bank account is credited.