Drawings are amountsof money taken out of a business by its owner.  Profits are only capital as long as they are retained in the business.  Once they are taken out by the owner (appropriated), there is a reduction in the business’s capital.

Following the previous example, if Tina had taken drawings of £150, then the accounting equation would then be:

£1,000 (asset of the stall) + £250 (asset, cash from the sales – £150 drawings) = £1,200 (original capital) + £50 (profit retained in the business)


Comments are closed.