Withdrawal Account

A withdrawal account is an account showing all transactions where the owner withdrew money from the business.

Periodically, a business owner will withdraw money from the business’s bank account for personal use.

Here, you need to show that money came from the bank and went to the owner.

To record the transaction, you use a cash account.

You also use an owners drawings account or if a partnership—a withdrawal account.

A withdrawal account is an equity account.

It’s balance isn’t shown on the diagram because it’s a contra account.

This means, unlike other equity accounts, it balances on the debit side.

To record a withdrawal transaction, you credit the cash account.

This shows money came from the bank.

Then you debit the withdrawal account.

This shows the money went to the owner.

The withdrawal account is also a temporary account, like income & expense accounts.

This is because its only purpose is to track how much money the owners withdrew from the business for personal use during this particular period.

So at period-end, the account needs to be closed out

To do this, you transfer the balance to the capital account

You do this because the business no longer owes this money to the owner.

This is because its only purpose is to track how much money the owners withdrew from the business for personal use during this particular period.

If an owner withdraws money from the business for personal use, then the business no longer owes this money to them.

To show this, you need to reduce the capital account’s balance.

The capital account shows money owed to the owners.

So at period-end, you transfer the withdrawal account’s balance to the capital account.

Doing this brings the withdrawal account’s balance to zero—thereby closing it.

This effectively leaves the account empty—ready for next period.

To record the transfer, you credit the withdrawal account.

This shows you are taking value from that account.

Then you debit the capital account.

This shows you transferred the value to capital, and the debit entry has offset the capital account’s balance

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