Drawings always existed with the capital of business entity . is this ...
Yes
Drawings have always existed with the capital of a business entity
Explanation:In accounting, drawings refer to the amounts withdrawn by the owner of a business for personal use. These withdrawals are not considered as expenses of the business but rather as a reduction in the owner's equity. Drawings have always been an essential aspect of a business entity, as they represent the owner's ability to take out funds for personal use from the business.
Capital vs. Drawings:-
Capital: Capital represents the initial investment made by the owner into the business. It is the amount of money or assets that the owner contributes to start and operate the business.
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Drawings: Drawings, on the other hand, are the amounts taken out by the owner from the business for personal use. These withdrawals are not considered as business expenses but rather as a decrease in the owner's equity in the business.
Importance of Drawings:- Drawings play a crucial role in determining the true profitability of a business. By tracking the amount of drawings taken out by the owner, the business can accurately assess its financial performance and make informed decisions about future operations.
- Drawings also help in maintaining a clear distinction between personal and business finances. By recording all withdrawals as drawings, the business can ensure proper accounting practices and avoid confusion when analyzing financial statements.
Overall, drawings have always been an integral part of a business entity's financial structure, alongside the capital invested by the owner.