Drawings are anything the owner takes from the business for personal use: cash, goods or a personal bill paid by the business. Drawings reduce capital and never appear in the income statement. Mixing them with expenses understates profit.
This lesson follows the statement of financial position, where drawings were deducted in the capital section. It sits within sole-trader statements.
What counts as drawings, and what is the entry?
If the money or goods leave the business for the owner’s own use, the entry is debit Drawings. The credit depends on what left.
| What the owner takes | Debit | Credit |
|---|---|---|
| Cash from the till or bank | Drawings | Cash or Bank |
| Goods from inventory | Drawings | Purchases |
| Personal bill paid by the business | Drawings | Bank |
At the year end, the Drawings account total is transferred to the capital account.
How do you decide where an owner transaction goes?
- Ask who benefits: if it is the owner personally, it is drawings.
- Ask if the business earned income from it: if the cost helped earn revenue, it is an expense.
- Record at cost for goods and at the amount paid for bills.
- Total the Drawings account and deduct it in the capital section.
Worked example
Rahim runs Rahim’s Motor Accessories. In 2025 he took RM400 in cash each month for 12 months, took goods costing RM700 for his own car, and paid his home electricity bill of RM350 from the business bank account. His opening capital was RM20,000.
Step 1, total the drawings: cash 400 × 12 = 4,800, goods 700, bill 350. Total is 4,800 + 700 + 350 = RM5,850.
Step 2, the entries:
- Cash: debit Drawings 4,800, credit Bank 4,800.
- Goods: debit Drawings 700, credit Purchases 700.
- Bill: debit Drawings 350, credit Bank 350.
Step 3, the profit after removing the misposting. His draft income statement showed profit of RM12,950, but the electricity bill was in expenses and the goods were still in purchases. Remove both: 12,950 + 350 + 700 = RM14,000.
Step 4, the capital section:
| RM | |
|---|---|
| Opening capital | 20,000 |
| Add: Profit for the year | 14,000 |
| 34,000 | |
| Less: Drawings | (5,850) |
| Closing capital | 28,150 |
Check: 20,000 + 14,000 = 34,000, and 34,000 − 5,850 = 28,150.
What mistake catches students here?
A common slip is to leave the personal items among the expenses.
Mistaken working: profit RM12,950, drawings RM4,800 (cash only). Closing capital = 20,000 + 12,950 − 4,800 = 28,150.
The closing capital is the same, which makes the error easy to miss, but the profit is RM1,050 too low. Profit is used to judge how the business performed, so it must not be reduced by the owner’s personal spending.
The correction: profit 14,000 and drawings 5,850. Both give 28,150, but only one tells the truth about the year.
Check yourself
Try these on paper first, then open each answer.
1. The owner takes goods that cost RM240 for family use. Write the entry.
Show answer
Debit Drawings RM240, credit Purchases RM240. Goods are recorded at cost.
2. The business bank pays the owner’s personal phone bill of RM180. It was wrongly debited to Telephone expense. What is the effect on profit, and what is the correction?
Show answer
Profit is understated by RM180. Correction: debit Drawings 180, credit Telephone expense 180.
3. Opening capital RM10,000, profit RM6,500. The owner took RM300 cash each month for 12 months and goods of RM400. Find closing capital.
Show answer
Drawings = 300 × 12 + 400 = 3,600 + 400 = 4,000. Closing capital = 10,000 + 6,500 − 4,000 = RM12,500.
Where does this lead next?
Once drawings are in the right place, you can explain why profit is not the same as the change in capital. For practice, try the mixed practice set, and use the percentage-base explorer when a question gives you a percentage to apply to a balance.
If you are not sure whether a transaction belongs to the owner or to the business, a teacher in online one-to-one Accounting tuition can talk it through with examples from your own papers.