Owner’s Draws

Question

I have a small business and I’m trying to figure out how to take and record owner’s draws. I set up an Equity account, and titled it “Owner’s Draw”. Does that work? The way I currently take a draw, is by transferring the money from my business account to my personal account. What is the correct way to take an owner’s draw? And if a transfer is correct, should I record it as an actual transfer? Even though I can’t assign it an account? Or if I should record it as a check? If I do write checks or record as a check, I don’t want it to look funny, or look like I’m receiving income twice. Thanks, so much!

Answer

Transfers are for money moving from one business account to another, do not use that feature.

If you are taking a draw, use the write check window and in the expense tab enter your Owner Draw account.

The entry created on your books decreases cash and increases the draw account, neither of which is an income account and therefore has no effect on your income statement. (they effect your balance sheet asset and equity sections)

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4 Comments on “Owner’s Draws”

  1. lisa moss Says:

    Hi, I used my business amex cc for personal use. I entered the the charge to the cc acct and expense was posted. At year-end, I made an adj by dr. Owner’s Draw and cr. All the Expenses that were personal. Is that correct?

    Please help. Thank you.

    • quickanswer Says:

      Yes Lisa, as you described it, the end result is a proper presentation. I would suggest that you should begin to record these personal use charges directly to the owners draw account as they occur so that your interim financials reflect the correct amount of expense rather than waiting till the end of a month or year.

  2. user1 Says:

    This doesn’t really tell you how to record the draw into the personal checking so that account balances.

    • quickanswer Says:

      It will be a deposit to your personal account, I’m not sure what you mean “how to record”? It’s your personal checking, not your books, it is not considered income, but rather a withdrawal of your investment and earnings from your own company. I’m assuming your company is a Sole Proprietorship as that is the only format that “Owners Draws” apply to. As a sole proprietorship, you are a pass through entity and the Income from your business is reflected on the Schedule C you file with your 1040. These draws represented money leaving your business but not as expenses, so that Income remains taxable and on Schedule C.


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