luckpandaDrawings in Accounting: Meaning, Journal Entry and GST Treatment
What drawings are, the journal entry for cash and goods taken by the owner, GST credit reversal on goods taken home, and how to calculate interest on drawings.
On this page
- What are drawings in accounting?
- Is drawings a debit or a credit, and what is the journal entry?
- What happens to GST input credit on goods taken for personal use?
- How do drawings affect the financial statements?
- How do you calculate interest on drawings in a partnership?
- How should a small business manage owner drawings?
TL;DR: Drawings are money or goods an owner of a sole proprietorship or partnership takes out of the business for personal use. They are not an expense: debit Drawings, credit Cash, Bank or Purchases, then at year end close Drawings to the Capital account, which reduces the owner's capital. Goods taken home are recorded at cost, and any GST input tax credit on them must be reversed.
Drawings in accounting means the value of cash, goods or other assets that the owner of an unincorporated business withdraws for personal use. Sage defines a drawings account as the account sole proprietors and partnerships use to "draw (i.e. take) money from a business" (Sage). Because the owner and the business are one taxpayer but two accounting entities, drawings are treated as a return of the owner's capital, not as a cost of running the business, so they never reduce profit.
What are drawings in accounting?
Drawings are withdrawals by the owner, recorded in a separate Drawings account during the year so that the Capital account stays clean. Common examples:
- Cash taken from the till or bank for household spending
- The business paying the owner's personal bills: home electricity, school fees, personal income tax, life insurance premium
- Goods from stock taken home (a grocer's groceries, a furniture shop's sofa)
- A business asset, such as a laptop or car, transferred to personal use
- The owner's personal UPI or card spends made from the business account
Who can have drawings:
| Business type | Can the owner take drawings? | How owners are paid instead |
|---|---|---|
| Sole proprietorship | Yes | Drawings only; a proprietor cannot pay themselves a deductible salary |
| Partnership firm / LLP | Yes, per the partnership deed or LLP agreement | Drawings plus salary, commission and interest on capital if the deed allows |
| Private or public company | No | Salary, dividend, or a loan within legal limits; directors' loans are restricted under section 185 of the Companies Act, 2013 |
Is drawings a debit or a credit, and what is the journal entry?
Drawings is a debit. It is a personal account of the owner, so under the golden rule "debit the receiver, credit the giver" the owner (receiver) is debited (golden rules of accounting). In the modern approach, Drawings is a contra-equity account: it reduces equity, and decreases in equity are debits under Assets = Liabilities + Equity (Wikipedia: Accounting equation).
The journal entry for drawings debits Drawings A/c and credits whatever left the business. The table covers the common cases for a proprietor, Meera, who runs a GST-registered home furnishing shop.
| Transaction | Debit | Credit | Amount (₹) |
|---|---|---|---|
| Cash withdrawn for personal use | Drawings A/c | Cash A/c | 20,000 |
| Personal phone bill paid from business bank | Drawings A/c | Bank A/c | 1,499 |
| Goods taken home (cost ₹15,000, GST input credit ₹2,700 claimed at purchase) | Drawings A/c | Purchases A/c | 15,000 |
| Reversal of that GST input credit | Drawings A/c | Input CGST A/c / Input SGST A/c (₹1,350 each) | 2,700 |
| Business laptop given to her son (book value ₹30,000) | Drawings A/c | Computers A/c | 30,000 |
| Owner's personal income tax paid from business bank | Drawings A/c | Bank A/c | 40,000 |
| Year-end closing of Drawings | Capital A/c | Drawings A/c | total |
Goods are withdrawn at cost, not selling price, because no sale happened. Crediting Purchases (rather than Sales) keeps the trading account honest: the goods are removed from cost of goods sold so gross profit is not understated. See the trading account format for where Purchases sits.
What happens to GST input credit on goods taken for personal use?
Input tax credit on goods or services used for personal consumption is blocked under section 17(5)(g) of the CGST Act, 2017. If the goods were bought for the business and you claimed the credit, then took them home, reverse the credit in your next GSTR-3B. Section 17(5)(h) blocks credit in the same way on goods lost, stolen, destroyed, written off, or given away as gifts or free samples (CGST Act, section 17).
For items used partly for business, section 17(1) limits credit to the business share. A car or phone used 60% for business carries 60% of the eligible credit, though motor vehicles for under 13 passengers are blocked separately under section 17(5)(a) unless you deal in or transport them. Use the input tax credit calculator to work out the eligible amount.
How do drawings affect the financial statements?
Drawings do not appear in the profit and loss account. They appear only in the capital section of the balance sheet, deducted from opening capital plus profit.
Meera's capital account for the year:
| Particulars | ₹ |
|---|---|
| Opening capital, 1 April | 5,00,000 |
| Add: Net profit for the year | 6,00,000 |
| Add: Interest on capital (if any) | 0 |
| Less: Drawings (cash 2,40,000 + goods 15,000 + ITC reversal 2,700) | (2,57,700) |
| Closing capital, 31 March | 8,42,300 |
If you mistakenly book drawings as an expense (for example, the owner's phone bill as Telephone Expense), profit falls by the same amount, income tax is understated, and the capital account looks unchanged. For income tax this is a disallowance waiting to happen, since personal expenditure is not deductible business expenditure. Keep every personal spend in Drawings and the profit and loss account shows the real result of the business.
How do you calculate interest on drawings in a partnership?
Interest on drawings is a charge a partnership firm makes on partners who withdraw money during the year. Under section 13 of the Indian Partnership Act, 1932, partners get interest on capital and pay interest on drawings only if the partnership deed says so; there is no default rate.
When drawings are made at different times, multiply each amount by the rate and the months it was outstanding until year end. For equal monthly drawings, use the average period:
| When drawings are made each month | Average period | Interest formula |
|---|---|---|
| Beginning of every month | 6.5 months | Total drawings x Rate x 6.5 / 12 |
| Middle of every month | 6 months | Total drawings x Rate x 6 / 12 |
| End of every month | 5.5 months | Total drawings x Rate x 5.5 / 12 |
| Beginning of every quarter | 7.5 months | Total drawings x Rate x 7.5 / 12 |
| End of every quarter | 4.5 months | Total drawings x Rate x 4.5 / 12 |
Example: Partner Arjun withdraws ₹10,000 at the start of every month (₹1,20,000 a year) and the deed fixes interest at 10% a year. Interest = 1,20,000 x 10% x 6.5 / 12 = ₹6,500.
Journal entries: debit Arjun's Current (or Capital) A/c and credit Interest on Drawings A/c for ₹6,500; then debit Interest on Drawings A/c and credit Profit and Loss Appropriation A/c. Interest on drawings is income of the firm and increases the profit shared among partners. Use the simple interest calculator to check a single drawing outstanding for part of the year.
How should a small business manage owner drawings?
Managing drawings well is mostly about separation and timing:
- Pay yourself on a schedule. A fixed transfer on, say, the 1st of each month from the business account to a personal account makes drawings easy to spot and keeps working capital predictable.
- Never spend personally from the business account. Each personal UPI payment from the business account is one more entry to reclassify at year end.
- Withdraw from profit, not from capital you need. If drawings exceed profit for the year, capital falls. That is allowed, but it is a sign the business is funding the household rather than growing.
- Record goods taken home the day you take them. Stock counts that do not reconcile at year end often trace back to unrecorded drawings in kind.
- Keep GST clean. Reverse input credit on goods taken for personal use in the same month.
This guide is general information, not tax advice. Confirm partnership terms against your deed and GST treatment with your chartered accountant.
Free toolSimple interest calculatorInterest on a principal over days, months or years.Open the simple interest calculatorQuestions
Are drawings an expense?
No. Drawings are a withdrawal of the owner's capital. They reduce the Capital account on the balance sheet and never appear in the profit and loss account.
Is drawings an asset or a liability?
Neither. Drawings is a contra-equity account that reduces owner's equity. It carries a debit balance until it is closed to Capital at year end.
Why are goods withdrawn credited to Purchases?
Because the goods were bought for resale and are no longer available for sale. Crediting Purchases at cost removes them from cost of goods sold, so gross profit is not understated.
Can a company director take drawings?
No. A company is a separate legal person, so directors and shareholders are paid through salary, dividends or a permitted loan, not drawings.
Where are drawings shown in the balance sheet?
On the liabilities side (or in the equity section), as a deduction from capital: opening capital plus net profit minus drawings equals closing capital.
Is interest on drawings an income or an expense?
Income for the firm. It is credited to the Profit and Loss Appropriation account and charged to the partner's capital or current account.