How to Find and Track Drawings in Accounting

Drawings represent funds or assets that owners take from their business for personal use. This differs significantly from a business expense or salary, as drawings are not considered an operating cost of the business. Accurately tracking these withdrawals is important for maintaining clear financial records and for proper tax reporting.

Understanding Drawings

Drawings encompass any transfer of business assets, including cash or goods, from the business to its owner for personal benefit. Examples include direct cash withdrawals from the business bank account, using business funds to pay personal bills, or taking inventory for personal consumption. Unlike business expenses, drawings do not appear on the income statement; instead, they directly reduce the owner’s equity. Businesses track these transactions using an Owner’s Drawing Account or Partner’s Drawing Account. This temporary account is closed out to the owner’s equity at the end of each fiscal year, resetting its balance to zero for the new period.

Identifying Drawings on Financial Statements

The summarized effect of drawings is primarily visible on the Statement of Owner’s Equity. This financial statement reconciles the owner’s equity from the beginning to the end of an accounting period. It details how net income, additional owner contributions, and owner drawings collectively impact the overall equity balance. Drawings are always presented as a deduction from the owner’s equity on this statement. The resulting ending owner’s equity balance, which reflects the reduction from drawings, is then reported on the Balance Sheet.

Tracing Drawings in Accounting Records

To locate individual drawing transactions, examine specific accounting records. Each drawing requires a journal entry that debits the Owner’s Drawings account and credits the Cash or other asset account from which the withdrawal was made. These entries populate the Owner’s Drawings account in the general ledger. Reviewing this ledger provides a detailed, chronological list of every drawing transaction, including date and amount.

Source documents provide initial evidence for these transactions. These include bank statements showing ATM withdrawals or checks written to the owner, check stubs, personal expense receipts paid with business funds, or internal memos documenting asset transfers.

Modern accounting software, such as QuickBooks or Xero, simplifies tracking owner drawings. These platforms allow for easy categorization of withdrawals, making them searchable within the software’s ledger or through dedicated equity reports. Regularly reviewing these digital records ensures accurate tracking of all owner withdrawals.