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

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. 

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!

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.

Yes, you are so right!  I got it backwards . . . sorry all.  I do get a little confused sometimes because QB doesn't use regular Debit and Credit accounting terms, rather 'Increase' and 'Decrease'.   I will see if I can edit my post above so as not to lead anyone further astray!  Good catch @Curious_Bug .  Thanks.

Rochelley

Hi I'm trying to start tracking owner's draws accurately.  I started using QBO last year and for any business expenses I had to log that were paid for with personal funds, I would subtract from the Cash on Hand account.  Also if someone paid me cash that I kept and spent on personal expenses rather than depositing into the business account I would add to the Cash on Hand account.  So essentially I think I can rename that account Owner's Equity and just keep using it as I have been?  Do I need to zero it out as of Dec 31 and if so how can I do that without recording it as income?  I tried setting up the Owner's Equity accounts like mentioned but it still needs a bank account to log the expense to to tell it where the money is coming from.  So I don't understand how to get this working right in that way.

Hi Carissa22, 

Thanks for joining this thread! Keeping track of owner's draws is important for any growing business to ensure that expenses are accurately accounted for. I can help point you in the right direction. 

QuickBooks Online's support team has your back when it comes to the technical components of the program. As for the accounting side of things, it's best to reach out to an accountant as they are the experts who can determine the best way to handle this for your individual business needs. You can invite your accountant to view your QuickBooks Online company via the My Accountant menu. If you're not already working with an accountant, don't worry, you can use the Find a pro to help option to search for a QuickBooks certified Pro Advisor in your area. 

If you have any technical questions about QuickBooks Online please let me know! 

Hello @Carissa22 ,

I wouldn't suggest re-naming the Cash on Hand account as it is the wrong account type.  Owner's Equity accounts need to be the account type "Equity" so they show up in the proper place on the balance sheet.

Rather you should create the Owner's Equity accounts as shown above in this post, and then clear your COH account into the Owner's Equity accounts.  You say you were subtracting from the COH account each time you used personal money for business expenses and adding to the COH account each time you spent business money for personal expenses.  Then a negative balance in the COH account would indicate that there were more contributions than withdrawals.  A positive balance would indicate that you had drawn more cash personally than had been put in.  You clearing entries would be as follows:

If you have a $10.00 positive balance in your COH account (for example):

                                      DR                         CR

COH                            10.00

Owner's Capital                                          10.00

If you have a $10.00 negative balance in your COH account:

                                      DR                         CR

COH                                                           10.00

Owner's Draw              10.00

Going forward:

Spend personal money on business expenses:

                                      DR                         CR

Expense Acct              10.00

Owner's Capital                                         10.00

Spend business cash, cheque CC on personal expenses:

                                      DR                         CR

Cash/Bank/CC acct                                   10.00

Owner's Draw              10.00

Just keep in mind that QB does not operate with the DR/CR terminology, but rather each transaction is referred to as an "Increase" or a "Decrease".   Just remember this about account types:

Income Accounts:    DR decreases, CR increases

Expense Accounts:  DR increases, CR decreases

Asset Accounts:       DR increases, CR decreases

Liability Accounts:    DR decreases, CR increases

Equity Accounts:      DR decreases, CR increases

It is these increases and decreases that allow your financial statements to "balance" and leads to The Accounting Equation which is fundamental to double-entry accounting:  Assets = Liabilities + Equity

Hope this helps.