Drawing Account

AAA

DEFINITION of 'Drawing Account'

An accounting record maintained to track money withdrawn from a business by its owners.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.

INVESTOPEDIA EXPLAINS 'Drawing Account'

A drawing account is helpful to business owners in tracking their businesses separately from their personal finances. It is particularly relevant in partnerships, where partners may wish to monitor withdrawals to ensure that a partner is not taking too much money out of the business. A drawing account is closed to the owners' equity account each year, and is not recorded as a business expense.

RELATED TERMS
  1. Sub Account

    A segregated balance of funds (account) for which the bank acts ...
  2. Demand Deposit

    Funds held in an account from which deposited funds can be withdrawn ...
  3. Account Balance

    1. The amount of money in a financial repository, such as a checking ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to ...
  5. Account

    1. An arrangement by which an organization accepts a customer's ...
  6. Per Transaction Fees

    An expense a business must pay each time it processes a customer’s ...
RELATED FAQS
  1. What are some of the advantages and disadvantages of absorption costing?

    Companies must choose between using absorption costing or variable costing in their accounting systems. There are advantages ... Read Full Answer >>
  2. What is the difference between the cost of capital and the discount rate?

    The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >>
  3. Why does zero-based budgeting require ongoing evaluation and management?

    Zero-based budgeting must have ongoing evaluation and management due to the fact a zero-based budget requires management ... Read Full Answer >>
  4. What risks does a business owner face under a business structure with unlimited liability?

    The risks that a business owner faces under a business structure with unlimited liability are literally unlimited, but they ... Read Full Answer >>
  5. What is the prime cost formula?

    The term "prime cost" refers to the direct costs of manufacturing an item. It is calculated by adding the cost of raw materials ... Read Full Answer >>
  6. How can I lower my effective tax rate without lowering my income?

    There are lots of ways to lower your effective tax rate, although your individual circumstances determine whether you can ... Read Full Answer >>
Related Articles
  1. Retirement

    Discover Master Limited Partnerships

    These unique investments provide significant tax advantages.
  2. Fundamental Analysis

    Looking For Profit In Privately-Held Companies

    Private companies offer unique opportunities for those with the knowledge and resources to take advantage.
  3. Personal Finance

    Protect Your Personal Assets

    A family limited partnership (FLP) can go a long way toward securing your family's property.
  4. Entrepreneurship

    Can You Handle A Home-Based Business?

    Find out if you have the traits to be a top entrepreneur.
  5. Personal Finance

    The Benefits And Pitfalls Of Joint Tenancy

    This arrangement allows beneficiaries to access your account without having to go to court.
  6. Options & Futures

    Asset Protection For The Business Owner

    Could incorporating your business help protect it? Find out here.
  7. Investing Basics

    Explaining Write-Downs

    A write-down is a reduction in the book value of an asset because it is overvalued compared to the market value.
  8. Entrepreneurship

    Should I Have An IPO on My Business

    The ultimate outside investment opportunity is going public through an initial public offering. However, IPOs come with costs that you may want to avoid.
  9. Entrepreneurship

    Why Small Business Owners Need Financial Advisors

    Small business owners are too busy to effectively manage their own money. That's why a financial advisor can be a big help.
  10. Economics

    What is a Business Model?

    Business model is the term for a company’s plan as to how it will earn revenue.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center