Distinguish between Current Account and Drawings Account

 Distinguish between Current Account and Drawings Account

A Current Account and a Drawings Account are two distinct financial concepts typically used in the context of business accounting:

Current Account:

A Current Account is a component of a business's financial records, specifically found in the balance sheet.

It represents the financial relationship between the business and its owners or shareholders.

The Current Account includes the cumulative net profits or losses generated by the business over time.

Net profits increase the Current Account balance, while net losses decrease it.

It is part of the equity section of the balance sheet and reflects the owner's or shareholders' stake in the business.

Drawings Account:

A Drawings Account, on the other hand, is used to track withdrawals made by the business owner(s) from the company for personal use.

These withdrawals are often referred to as "drawings" or "owner's withdrawals" and represent the owner taking money out of the business for personal expenses.

The Drawings Account is part of the equity section of the balance sheet and is subtracted from the Current Account when calculating the owner's equity.

It helps maintain a clear distinction between the business's finances and the owner's personal finances.

In summary, the Current Account tracks the overall financial performance and equity of the business, while the Drawings Account keeps a record of withdrawals made by the owner(s) for personal use, ensuring that the business's financial and owner's personal finances remain separate and accounted for correctly.