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Level 2

How do I draw earnings from my business account as a sole trader?

I work freelance, and have the basic QuickBooks package.

I have read on previous threads that the answer is to set up an Owners Equity account.  However, would this not result in a growing negative figure in that account? Is there a way of counter-balancing this?  Or perhaps I could use a Retained Earnings account? 

Any suggestions would be greatly appreciated.

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Best answer 03-05-2020

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QuickBooks Team

How do I draw earnings from my business account as a sole trader?

Hi wendygwright

 

The correct way to account for owner withdrawls would be to create an equity and use an expense/cheque, selecting the equity account in the category field. It will show as negative amounts in the equity account however this is the correct method, debit the equity account and credit the bank account.

 

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Level 2

How do I draw earnings from my business account as a sole trader?

With regard to the part of the question "...would this not result in a growing negative figure in that account?", the routine for clearing down a drawings account is as follows:

 

For a simple sole trader business, transfer the total amount drawn for the year to Owner's equity account on the day after the balance sheet date using Journal or Transfer window (Debit Owner's equity, Credit Drawings).

 

However, if the equity account set up is more elaborate, such as a partnership with multiple capital and drawings accounts, the annual drawings for each partner is debited to their respective capital account; another journal transfer is needed to distribute the profit or loss for the year between the partners (Debit Owner's equity, Credit Capital Accounts assuming there was a profit).

 

The reason for making the adjustments on the first day of the next accounting year is to preserve the correct presentation of the balance sheet at the year-end date in the equity section showing Owner's equity opening balance, drawings and profit or loss for the year.

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6 REPLIES 6
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QuickBooks Team

How do I draw earnings from my business account as a sole trader?

Hello Wendygwright,

 

Can you clarify what package it is that you have, Are you using the Self-employed or Simple start? Thanks Becky

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Level 2

How do I draw earnings from my business account as a sole trader?

I am using Simple Start

Highlighted
QuickBooks Team

How do I draw earnings from my business account as a sole trader?

Hi wendygwright

 

The correct way to account for owner withdrawls would be to create an equity and use an expense/cheque, selecting the equity account in the category field. It will show as negative amounts in the equity account however this is the correct method, debit the equity account and credit the bank account.

 

View solution in original post

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Level 1

How do I draw earnings from my business account as a sole trader?

I'm running a partnership but same issue. I can see the Categories for Equity but what do I put under Payee? I'd normally just put my name and my husband's name, but it asks whether we are a supplier, customer or employee and we're none of those.

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QuickBooks Team

How do I draw earnings from my business account as a sole trader?

Hello Junef1, 

 

Welcome to the Community page, 

 

It would be a case you would just need to add your self as a supplier in order to record this transaction in Quickbooks as an expense/cheque under the category equity. 

Highlighted
Level 2

How do I draw earnings from my business account as a sole trader?

With regard to the part of the question "...would this not result in a growing negative figure in that account?", the routine for clearing down a drawings account is as follows:

 

For a simple sole trader business, transfer the total amount drawn for the year to Owner's equity account on the day after the balance sheet date using Journal or Transfer window (Debit Owner's equity, Credit Drawings).

 

However, if the equity account set up is more elaborate, such as a partnership with multiple capital and drawings accounts, the annual drawings for each partner is debited to their respective capital account; another journal transfer is needed to distribute the profit or loss for the year between the partners (Debit Owner's equity, Credit Capital Accounts assuming there was a profit).

 

The reason for making the adjustments on the first day of the next accounting year is to preserve the correct presentation of the balance sheet at the year-end date in the equity section showing Owner's equity opening balance, drawings and profit or loss for the year.

View solution in original post