Why capital account is not debited to record drawings?


When owner of the business withdraw funds or goods from the business, we do not debit capital account instead we open record these withdrawals in another account which is usually named as Drawings account.

So, we record such transactions without disturbing capital account in drawings account. Drawings account is also a capital account as this account is also recording the transactions related to owner and its stake in the business. But as it is recording the drawings from the business, which is opposite from investing additional capital in the business, therefore, it has opposite nature. And due to the same nature it has Debit balance as opposed to credit balance of Capital account.

The main reason for maintaining separate account for owner’s withdrawals instead of adjusting capital account straight is that capital account holds special meanings and is also of extreme importance. And if this account is adjusted every year for different withdrawals made by the owner then users of financial statements might loose the track of original amount invested in the business.

Thus, in order to record the “indirect disinvestment” and also to keep the record of original capital invested, we record drawings in separate account.

Drawings account is one of the examples of contra-capital (or contra-equity accounts). Contra means opposite and contra-equity account means an account with has an opposite balance i.e. debit balance  as compared to normal credit balance.

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Teaching professional business subjects to the students of FIA, ACCA, CIMA, CA etc. He also found ACCA LIVE which is Pakistan's first portal to provide online classes and distance learning solutions to FIA/ACCA students. At PakAccountants.com he is busy making study material for different qualifications. Beside writing articles he answers questions asked using ASK TUTOR!