Capital and Drawings Accounts

Question 1

Define capital.

Answer 1

Capital refers to the assets that are contributed by the owner to the business.

Question 2

Define drawings.

Answer 2

Drawings refer to the withdrawal of assets for the owner’s personal use.

Question 3

Explain the accounting of drawings and capital in relation to relevant accounting principle.

Answer 3

The accounting entity concept state that the business and its owner are treated as separate entities and only transactions related to the business are recorded. Hence capital and drawings accounts are used to record owner’s capital contribution and withdrawal of assets.