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boomerang360
April 25, 2019
Question

Hi, how do I enter/track owners draw payments?

  • April 25, 2019
  • 1 reply
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1 reply

AddieC
AddieC
April 25, 2019

Hi there, 

 

I'd like to make sure you're getting the best advice possible on how to enter and track your owners draw payments. 


The answer really depends on what your accountant advises. How this is recorded in your books is up to them, and there's a few different options. Some people set this up as an expense, others as a payroll item, etc. I'd recommend consulting with your accountant first and foremost, so that your books are reflecting this in a way that works best for you and your business accounting structure. 

 

Based on your accountant's advice, we'll be happy to help you record the transaction in whichever way you see fit. 

 

If you're not already connected to an accountant, you can find one in your area here: Find a ProAdvisor.

 

I hope this helps get you on the right track. If you have any questions, please let me know. 

 

Have a great day. 

R
Rochelley
April 26, 2019

This should normally be done as follows:

 

1.  Set up an Equity account called something like 'Owner's Equity'.

2.  Create a sub-account under 'Owner's Equity' and call it something like 'Owner's Capital'.

3.  Create a 2nd sub-account under 'Owner's Equity' and call it something like 'Owner's Draw'.

You would never make your entries to the top-level account, as this is simply your account 'heading', and all totals from sub-accounts underneath it will roll up into this.  Keeping track of the Owner's Capital or contributions and the Owner's Draws in separate accounts allows you to see the balance of each, at any given time, but the net total will always be in your top level account.

 

Whenever you make a posting to indicate that the owner has put in his own cash or spent his own money on business expenses, the Owner's Capital account will be on the other side - always a Debit.

 

Whenever money goes out of the company to the owner, whether it be by cash withdrawal, or company money spent on personal expenses, you will post to Owner's Draw account on the other side - always a Credit.

 

These terms are usually used in a small enterprise or sole proprietorship where the owner's income is simply his profit for the year.  If this is an incorporated company, you may want to replace the word 'Owner' in these accounts with 'Shareholder'.

 

Hope that helps!

 

    C
    Curious_Bug
    December 10, 2020

    I think the posting is backwards. Posting should be credit Owner's Capital when Owner deposit $ or spent personal money for the business and Debit Owner's Draw when business pays for personal expenses or chase withdrawal.

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