Have you ever wondered how accountants keep track when business owners take money or goods for personal use? If you are planning to pursue the ACCA Qualification, understanding basic accounting concepts is very important for building strong financial knowledge. One of those essential concepts is Drawings in Accounting, which plays a major role in bookkeeping and business record management.
These withdrawals may appear simple, but they directly affect business capital and financial statements. In this blog, you will explore the different types of Drawings in Accounting and understand their features.
Understanding the Different Types of Drawings in Accounting
Different types of drawings affect business records in different ways. Below are the most common types every beginner should understand:
Cash Drawings
Cash Drawings occur when an owner extracts liquid capital directly from the entity’s financial holdings for non-business purposes. In accounting, a business is treated as a completely separate legal and financial entity from its owner (the Business Entity Concept), which is a key principle covered in the ACCA Qualification.
Therefore, when an owner takes cash out of the company bank account or physical cash drawer, it is not considered an operational expense.
Features
- Direct Liquid Reduction: This activity drains cash or bank balances immediately. It strips the firm of its most liquid resources, which could otherwise be used to pay off short-term operational debts or suppliers.
- Immediate Current Asset Impact: Cash is a current asset. Drawing it down causes an immediate, real-time drop in the total current assets listed on the asset side of the balance sheet.
- Face Value Quantifying: Unlike inventory or machinery, cash has no fluctuating market value or depreciation. It is recorded simply and exactly at the face value of the currency notes or bank transfer amount taken.
Examples
- The Owner takes $200 from the cash register for grocery shopping.
- Business bank account transfers $1,500 to pay the owner’s personal credit card.
Goods Drawings
Goods Drawings happen when an owner withdraws physical trading stock, merchandise, or raw materials from the business inventory for personal use or consumption. This accounting treatment is an important concept covered in the ACCA Qualification, especially in financial accounting principles.
However, since the owner is not a customer, the business cannot book this as a “Sale” and cannot record a profit. To fix the books, the accountant treats the transaction as if those goods were never bought for the business in the first place, reversing the original purchase.
Features
- Zero Revenue / Profit Generation: Even though stock physically leaves the store shelves, no external sale happens. The business cannot recognise any profit, markup, or revenue from this internal consumption.
- Strict Cost Price Valuation: The goods are removed from the books at the price the business originally paid for them (cost price). The retail sticker price is completely ignored during this accounting adjustment.
- Purchase Account Reversal: Instead of crediting the “Sales” account, this transaction credits the “Purchases” account. This directly reduces the net cost of goods purchased by the business during that financial period.
Examples
- A bakery owner takes a customised cake home for their child’s birthday party.
- A bookstore owner takes three novels from the display shelf for their personal library.
Asset Drawings
Asset Drawings involve the permanent extraction of long-term, non-current physical assets (like machinery, vehicles, furniture, or electronics) from the business to become the private property of the owner. Unlike inventory, which is meant for quick sale, these assets were originally bought to help the business operate over many years.
When an owner takes a capital asset home permanently, the business must completely remove the asset’s remaining value from its registry, effectively shrinking the physical size and operational capacity of the firm.
Features
- Non-Current Asset Shrinkage: This type removes long-term wealth from the balance sheet. It permanently reduces the firm’s net block of fixed assets, which can impair the company’s long-term production capabilities.
- Written-Down Value (WDV) Recording: The asset cannot be recorded at its original buying price if it has been used. It must be written off using its current book value (Original Cost minus its Accumulated Depreciation up to that exact date).
- Permanent Registry Removal: The asset completely exits the business operations. The accountant must clear both the asset account and its corresponding accumulated depreciation account from the general ledger.
Examples
- The owner takes an office sofa and moves it into their home’s living room.
- The owner transfers the ownership of a company car to their spouse.
Conclusion
Understanding Drawings in Accounting helps beginners build confidence in managing and recording financial transactions. Whether it involves cash, goods, or business assets, each type of drawing affects accounts differently and must be tracked properly.
If you are preparing for the ACCA Qualification, learning these practical accounting concepts can make financial reporting and bookkeeping easier to understand. With support from MPES Learning, complex accounting topics can become simpler, clearer, and more useful for real business situations.