Definition
A Partner’s Drawing refers to any funds withdrawn from the business by a partner for personal use. It represents a reduction in the partner’s capital account within the partnership. Drawing accounts are temporary accounts that reset each accounting period, transferring their final amount to the partner’s capital account at the end of the fiscal year.
Examples
- Weekly Withdrawals: A partner withdraws $500 each week for personal expenses. Over 52 weeks, this totals $26,000.
- Lump Sum Withdrawal: A partner takes a lump sum of $20,000 to pay for personal travel expenses.
- Monthly Withdrawals: A partner withdraws $2,000 at the beginning of each month to pay for household needs, totaling $24,000 annually.
Frequently Asked Questions (FAQs)
What are drawings in a partnership?
Drawings in a partnership refer to the amount of money or goods taken by the partners from the firm’s profits for personal use.
How do drawings affect a partnership’s accounts?
Drawings reduce the partner’s capital account and are not considered expenses of the business. They are not included in the profit and loss statement but affect the balance sheet.
Are drawings taxable?
Drawings themselves are not taxable. The partners are taxed on their share of the partnership’s profit, irrespective of the amounts withdrawn.
How are drawings recorded in accounting books?
Drawings are recorded by debiting the drawing account and crediting the cash account or bank account, thereby reducing the partner’s equity in the partnership.
What’s the difference between drawings and salary in a partnership?
Drawings are personal withdrawals from profits that reduce the capital account, while salary is considered an expense and is usually agreed upon as a payment to partners for managing and running the business.
Related Terms
- Capital Account: The account reflecting the amount of capital contributed by partners in a business.
- Profit Sharing: The distribution of a portion of the firm’s profits to partners based on an agreed formula.
- Partnership Agreement: A legal document outlining the terms and conditions of the partnership, including profit-sharing ratios and the handling of drawings.
- Equity: The value of an owner’s interest in a firm, calculated as total assets minus total liabilities.
- Distributable Profit: The portion of the profits available for distribution to the partners after all expenses and taxes have been deducted.
Online References
Suggested Books for Further Studies
- Partnership Accounts Made Easy by R.C. Gupta
- Advanced Accounting by Joe Ben Hoyle, Thomas Schaefer, and Timothy Doupnik
- Fundamentals of Partnership Accounting by Janet Henshaw
Fundamentals of Partner’s Drawing: Accounting Basics Quiz
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