Capital and Drawings
It is vital to the reminder that business is treated as a detached entity from the businessman. All transactions of the business have to be analyzed from the business point of view and not from the proprietor’s point of view. The total with which a trader starts the business is known as Capital. The proprietor may leave definite amounts from the business to meet personal expenditure or goods for personal use. It is called Drawings.
A drawing account is a capital account. However, as proprietor withdrawals decrease the account value, a debit balance is probable in a drawing account. The drawing account will have a debit balance for two causes. First the draw or withdrawal by the proprietor reduces the capital account. Second, because each transaction involves a debit and a credit, and because a withdrawal of money requires a credit to the Cash account, the owner’s drawing account will need a debit for the similar amount.