Drawing Account

Definition

The term drawing account is used to describe an account that records money and assets withdrawn from a company by its owners.  Drawing accounts are typically associated with unincorporated businesses such as partnerships and sole proprietorships.

Explanation

Drawing accounts are used by business owners to separate business transactions from personal ones.  They're of particular importance in partnerships, since they allow each partner to monitor the withdrawals of the other.

The drawing account is a contra-equity account, meaning it is subtracted from owner's equity to determine the net owner's equity value appearing in the balance sheet.  A typical transaction involves a debit to the drawing account and a corresponding credit to cash.

At the end of each accounting period, the drawing account is closed out with a credit, and a debit is transferred to owner's equity.

Related Terms

partnership, sole proprietorship, owner's equity, balance sheet