Drawings
Drawings are cash or goods an owner withdraws from an unincorporated business for personal use; they reduce the owner's capital account directly and are never recorded as a business expense.
See it move
A sole trader starts the year with capital of €20,000. Profit of €12,000 is added, then drawings of €7,500 cash and €400 of goods taken for personal use are subtracted, €7,900 in total. Closing capital is €20,000 + €12,000 − €7,900 = €24,100. Drawings reduce capital directly; they never appear as a business expense.
The formula
Variables
- Opening capital (€)
- Closing capital (€)
- Profit for the period (€)
- Drawings (€)
Rolls an owner's capital account forward for a period, given the profit earned and the drawings taken.
Check yourself
A sole trader begins the year with capital of €15,000. During the year she introduces an additional €3,000 of her own cash into the business, earns a profit of €9,000, and withdraws €4,200 cash plus goods for personal use costing €250. What is her closing capital balance?