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acmd
October 21, 2020
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Managing Owner's Draw with Sole Proprietorship

  • October 21, 2020
  • 2 replies
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Running QuickBooks Desktop Pro 2018.

 

I created a new company file. It came with Owner's Equity and Owner's Draw accounts, both of them Equity accounts. How do I log money that I transferred out of the business to pay myself? My business is sole proprietorship. Can you walk me through the exact steps needed to log transferring money out?

    Best answer by LeithG

    Hi acmd:

     

    As a sole proprietor, the business and personal funds related to your business operation are kind of comingled.  Since the net profit of the business will appear in your personal income taxes, paying yourself is a little more straight forward than if say you were running an incorporated business.

     

    Paying yourself simply involves an owner draw; crediting your cash/bank account, and debiting the owners draw account.

     

    Lots more on sole proprietorships in Canada here: 

    https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/setting-your-business/sole-proprietorship.html

    2 replies

    LeithG
    LeithGAnswer
    October 21, 2020

    Hi acmd:

     

    As a sole proprietor, the business and personal funds related to your business operation are kind of comingled.  Since the net profit of the business will appear in your personal income taxes, paying yourself is a little more straight forward than if say you were running an incorporated business.

     

    Paying yourself simply involves an owner draw; crediting your cash/bank account, and debiting the owners draw account.

     

    Lots more on sole proprietorships in Canada here: 

    https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/setting-your-business/sole-proprietorship.html

      A
      acmdAuthor
      October 21, 2020

      Thanks for the responses, @LeithG and @LauraAB. When you say credit the cash/bank account, should I be adding my personal bank account as a separate account in QB (I've already added a business bank account in qb).

       

      @LauraAB I'm mainly creating a new file to clean up my books. I've been trying to find the best/proper way to handle transferring money out as well as transferring personal money in.

       

      In the first scenario, as lashedlifter pointed out, I could just use the Transfer Funds functionality, correct? In that situation, would I classify the Business bank account as the FROM account and what would I use for the TO account?

      LeithG
      LeithG
      October 21, 2020

      Hi acmd:

       

      You don't need to add your personal account to your business (nor would you probably want to).

      The transaction will be :

      credit: business bank account (cash)

      debit: owner's draws (showing a reduction of capital in the business)

      L
      LauraAB
      October 21, 2020

      Hello acmd,

       

      Thanks for joining us! I know there are many reasons to start a new company file in QuickBooks Desktop, such as starting a new company or cleaning up your books. Whatever reason you're doing so, I hope that the program is meeting your business needs and keeping your accounting as simple as possible. I'll point you in the right direction to learn how to handle this situation of moving funds from the owner's draw to pay yourself.

       

      Luckily, QuickBooks Desktop's in-product Help section has a suggestion you can consider for this very task. First, I'll show you the steps that the help section suggests and then I'll walk you through how to find that information.

      1. Select Write Cheques.
      2. Choose the Owner's Draw/Owner's Equity account in the Expenses section.
      3. Make the cheque out to the owner.
      4. Fill out the other details of the cheque as you'd like.
      5. Click Save and Close.

      To find those instructions, follow these steps.

      1. Go to the Help menu.
      2. Choose QuickBooks Desktop Help.
      3. Click the Help tab.
      4. Click the Search button.
      5. Enter keywords such as "owner's draw" into the search bar.
      6. Click Record an owner's draw to see the steps.

      @LeithG has also outlined steps that would likely use a journal entry instead. If you'd like to consider that option, you can review the Create a journal entry in QuickBooks Desktop to learn how to work with that kind of transaction.

       

      If you're feeling uncertain about which is the best option to go with, I encourage you to connect with an accountant. They'll be able to offer you guidance tailored to your business needs to make sure that you're meeting the bookkeeping requirements for your business. The Find an Accountant page on our website can help you search for an connect with QuickBooks-savvy accountants in your area.

       

      Wishing you the best with this!

      LeithG
      LeithG
      October 21, 2020

      @LauraAB 

      I don't use the sole proprietor version having been incorporated; do they also have the bank feeds integration?  (so few places write checks any more!)

       

      If that's the case, they could also initiate the transfer from the business to the personal account and categorize the transfer from the bank feed.

      L
      LauraAB
      October 21, 2020

      Great question! QuickBooks Desktop doesn't have a specific version for sole proprietorship. Rather, it's a matter of working with the program's features to record the transactions in a way that meets the filing requirements outside of the program. That's why it never hurts to work with an accountant to be sure that that is being accomplished.

       

      So to answer your question about bank feeds, yes, that option would also be available. As usual, there are a number of ways to record transactions in the program, so thanks for highlighting that one as well. :)

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