Journal entries for drawings and loans
Drawings and money put in change the owner's capital; a loan changes the liabilities. No income or expense arises, except for interest.
How to book it
- 1
Drawings: debit Drawings (reduces capital), credit Cash or Bank.
- 2
Money put in: debit Bank or Cash, credit Drawings.
- 3
Taking out a loan: debit Bank, credit Bank loan (a liability increases). Repaying: debit Bank loan, credit Bank.
- 4
Interest is an expense: debit Interest expense, credit Bank.
Worked examples
£450.00 in cash is taken from the till for private use.
Correct journal entry
Drawings £450.00 / Cash £450.00
Debit
Drawings£450.00
Credit
Cash£450.00
Why?
- Drawings: drawings reduce capital → debit
- Cash: asset decreases → credit
We take out a loan of £9,000.00. The bank pays the amount into our account.
Correct journal entry
Bank £9,000.00 / Bank loan £9,000.00
Debit
Bank£9,000.00
Credit
Bank loan£9,000.00
Why?
- Bank: asset increases → debit
- Bank loan: liability increases → credit
Your turn
Choose the accounts, enter the amounts and check. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
£10,500.00 of private money is paid into the business bank account.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
All cases on this topic
Typical mistakes
- Booking drawings as an expense: private spending is not a business expense.
- Booking interest on a repayment: the repayment only reduces the loan; interest is booked separately.
Frequently asked questions
How do you book drawings?
Debit Drawings, credit Cash (cash taken) or Bank (transfer).
How do you book taking out a loan?
Debit Bank, credit Bank loan with the amount paid out.
Why are drawings a debit?
Drawings reduce the owner's capital, and capital decreases on the debit side.