capital account and drawing account is a personal account of a propertier explain in 200-250 words.
Answers
Answer:
drawing account is an accounting record maintained to track money withdrawn from a business by its owners. A drawing account is used primarily for businesses that are taxed as sole proprietorships or partnerships. Owner withdrawals from businesses that are taxed as separate entities must generally be accounted for as either compensation or dividends.
KEY TAKEAWAYS
A drawing account is a ledger that tracks money withdrawn from a business, usually a sole proprietorship or partnership, by its owner(s).
A drawing account acts as a contra account to the business owner's equity; an entry that debits the drawing account will have an offsetting credit to the cash account in the same amount.
Drawing accounts work year-to-year: An account is closed out at the end of each year, with the balance transferred to the owner's equity account, and then re-established in the new year.
How a Drawing Account Works
A drawing account is a contra account to the owner’s equity. The drawing account’s debit balance is contrary to the expected credit balance of an owner's equity account because owner withdrawals represent a reduction of the owner's equity in a business. In keeping with double-entry bookkeeping, every journal entry requires both a debit and a credit. Because a cash withdrawal requires a credit to the cash account, an entry that debits the drawing account will have an offsetting credit to the cash account for the same amount.