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arkvalleyinfo
December 11, 2018
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Can someone please explain to me the difference between Owner Draw and Owner Equity?

  • December 11, 2018
  • 4 replies
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Best answer by SkinnyRaven

Owner draw is an equity type account used when you take funds from the business. When you put money in the business you also use an equity account. So your chart of accounts could look like this.

Owner Equity (parent account) 

Owner Draws (sub account of owner equity)

Owner Investment (sub account of owner equity)

4 replies

A
arkvalleyinfoAuthor
December 11, 2018
I am categorizing all of my personal expenses spent out of our business account to the "Owner Draw" account.  Is that correct?  I'm not sure when I should use Owner Draw versus the Owner Equity accounts.  I appreciate the help!
    S
    SkinnyRavenAnswer
    December 11, 2018

    Owner draw is an equity type account used when you take funds from the business. When you put money in the business you also use an equity account. So your chart of accounts could look like this.

    Owner Equity (parent account) 

    Owner Draws (sub account of owner equity)

    Owner Investment (sub account of owner equity)

      A
      arkvalleyinfoAuthor
      December 11, 2018
      That makes sense!  So it would be correct to use the draw account for a few random personal transactions?  Is it okay to use the draw account for an electronic transfer to my personal bank account?

      I really appreciate you answering my questions.  I will hopefully have all of this figured out soon!
      qbteachmt
      qbteachmt
      December 11, 2018

      "So it would be correct to use the draw account for a few random personal transactions?"

      As long the tax entity type for the Business is Sole Proprietorship or Single-member LLC treated as SP, then yes.

      "Is it okay to use the draw account for an electronic transfer to my personal bank account?"

      You are asking two things, here:

      The HOW it moved = electronic.

      The WHY you took funds = draw

      As for "Owner Equity", open the chart of accounts and try to open each Equity account. The one that does NOT have a Register view, no matter what it is named, is Retained Earnings, or Owner Equity that QB sill "close" the prior year into.

      You cannot set up Subaccounts here.

      I like NOT to see "Retained Earnings" but name that one Owner Equity.

      Then, name the others for Draws (out) and Contributions (in).

      At year end, you see Total Out and Total In. For Jan 1, close draws and contributions against each other and post the difference into Owner Equity. Now draws and contributions start at 0 for the new year.

        qbteachmt
        qbteachmt
        December 11, 2018

        "This article discusses another option...(quoting) If you pay for company purchases or assets with a personal check, credit card, or cash, you have, in effect, made a “loan” to your company."

        There is no such thing as Loan To/From yourself, for a Sole Proprietorship.

        For SP, we take Draws any time we want to. Or, we "reimburse" ourselves right away; you paid cash for Printer paper, and then write a business check to yourself for Office Supplies, to "buy" from yourself.

        There is no Loan and no Liability account for this Tax Entity type.

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