The normal balance of a withdrawal account is a debit.
Understanding Withdrawals in Accounting
In the realm of accounting, a withdrawal account, often referred to as owner's drawings, represents the funds, assets, or services that an owner takes out of the business for their personal use. This activity directly reduces the owner's equity or capital invested in the business. It is a contra-equity account, meaning it works against the natural balance of the equity account to decrease it.
The Dynamics of Debits and Credits
The fundamental principle of double-entry accounting dictates that every financial transaction impacts at least two accounts. These impacts are recorded as either a debit (left side of an account) or a credit (right side of an account). Each type of accounting element—assets, liabilities, equity, revenues, and expenses—has a "normal balance," which is the side (debit or credit) that increases that particular account. Conversely, an entry on the opposite side decreases the account.
Here's a breakdown of how debits and credits typically affect core accounting elements:
| Accounting Element | Normal Balance | To Increase | To Decrease |
|---|---|---|---|
| Assets | Debit | Debit | Credit |
| Liabilities | Credit | Credit | Debit |
| Capital (Equity) | Credit | Credit | Debit |
| Withdrawals | Debit | Debit | Credit |
Why Withdrawals Have a Debit Normal Balance
Owner's capital or equity accounts typically increase with credit entries (e.g., initial investments or net income) and decrease with debit entries (e.g., net loss). Since withdrawals directly reduce the owner's stake or equity in the business, they operate in an inverse manner to the normal credit balance of an equity account.
Therefore:
- To increase the total amount of withdrawals made by the owner, a debit entry is recorded in the withdrawal account.
- Conversely, to decrease a withdrawal (for instance, to correct an error or reflect a return of funds), a credit entry would be made.
Practical Insight
Consider a scenario where an owner withdraws cash from the business for personal use. To correctly record this transaction in the accounting books:
- The Withdrawal account would be debited to reflect the increase in the amount the owner has taken out.
- The Cash account (an asset account) would be credited to show the decrease in cash available to the business.
This ensures the fundamental accounting equation (Assets = Liabilities + Equity) remains in balance, as the decrease in assets (cash) is offset by a corresponding reduction in owner's equity (through the withdrawal account).
