drawing account
Drawing Account is the running record of cash or goods an owner takes out of their business for personal use, separate from salary or profit.
In plain English
Chidinma sells fabric at Balogun market, and every Friday she takes ₦15,000 from the shop's cash box to buy foodstuff for her house.
She does not call it salary because the business never officially pays her one. She simply calls it 'my money for the week' and moves on with her day.
But her accountant, when he finally sat her down to sort her books, gave that habit a proper name. He called it her drawing account, and told her it needed to be written down every single time, more than remembered.
This matters because that ₦15,000, multiplied across the year, is real money leaving the business. If she never tracks it, she will look at her shop one December and wonder why there is no profit left, even though sales were good all year.
A drawing account is not a loan she must repay, and it is not a wage with tax deducted at source. It is simply the owner's own money, taken from a business she owns, and it gets subtracted from her equity in the business, not counted as an expense that reduces profit on paper.
The same idea applies to a landlord in London who owns a small property management company and takes rent money out monthly for his own upkeep. His accountant tracks it the same way, calmly separating what the business earned from what the owner personally pocketed.
Chidinma's shop makes ₦2,000,000 profit for the year. She drew ₦780,000 in cash for personal use across twelve months. Her equity in the business only grows by ₦1,220,000, not the full ₦2,000,000, because the drawings already left her pocket.
Questions people ask
Is a drawing account the same as a salary?
No. A salary is a fixed wage with tax and deductions handled formally, usually for a director or employee on payroll. A drawing account is informal, it is the owner simply taking business money or goods for personal use, and it reduces their equity stake rather than being treated as a business expense.
Do I need to pay tax on money I draw from my own business?
Drawings themselves are not taxed as a separate transaction, but the business profit they come from usually is. If you run a registered company, speak to an accountant, because how drawings are treated for tax can depend on whether your business is a sole proprietorship or a limited company.
What happens if drawings are more than the profit made?
Then the owner has taken out more than the business actually earned, which shrinks their equity below what they originally put in. It is a warning sign worth watching, because it means the business is calmly funding a lifestyle it cannot yet afford.
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