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Accounting Exam Help Regarding Drawings

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Hi,

I was hoping someone can help me. I'm at University with an upcoming exam in Accounting. My degree is focused more on Business, but this is still a compulsory exam. I have no one else to ask so really hoping someone here can help.

On the Statement of Financial Position, a Director has loaned some money to his company in Year 1. In Year 2, he withdraws some money from the business's bank as a means of repaying some of the loan. On the SofFP, is this recorded as simply as lowering the bank balance and subsequently the 'creditors amount falling due within a year'?

Or do I need to record something in the equity section too? Doing what I've done above does balance the statement, but I want to check. And as this isn't an operating expense I am guessing it stays away from the income statement?!

If anyone would be kind enough to clarify this form me it'd be very helpful. Thanks!

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22nd May 2019 13:27

You're pretty much right. The cash withdrawal is simply a repayment of the director's loan to his company.

"Drawings" as mentioned in the heading, is a term which is normally only used in the context of to sole traders or partnerships. It refers to someone withdrawing their own money from the business.

Thanks (2)
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By hpercy
to paul.benny
22nd May 2019 13:46

That's very helpful, thanks a lot for clarifying this for me. And agreed, my terminology needs work.

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to hpercy
22nd May 2019 15:31

For "Drawings" use "Drawing Down" as the director is doing just that - drawing down the amount, or sometimes a portion of it, that the company owes to him via his DLA (Director's Loan Account).

DR DLA
CR Bank Account
(credits represent the opposite in a set of books to what they represent on your bank statement ie in a set of books a credit represents a withdrawal from the bank).

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22nd May 2019 13:29

Broadly correct as mentioned, but it does show you are not confident about the equity side of things, what it means and what it contains.

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By hpercy
to andy.partridge
22nd May 2019 13:48

Thanks for this, and yeah I plan on doing work on the equity, just a lot to wrap my mind around.

Thanks (0)
22nd May 2019 14:46

If your university really has no one to help you then you need to make an official complaint to the university board, or via the SU. Universities charge fees and are obliged to offer both teaching and tutoring to students and leaving them to seek answers on the internet (except for the obvious cases of research etc) is not acceptable. If necessary, contact the NUS and explain your situation - many universities have been lax in their duty of care to students and need to be brought to book.

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