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Confused on owners draws

I am using quickbooks simple start online. I've been searching through the threads, and am finding conflicting, or just incomplete info. I am a sole proprietor and need to record draws. I'm seeing a lot of threads mentioning to create an equity account. One for draws and one for contributions.

1.) For "Detail Type", am I choosing "Owner's Equity" from the list and just changing the "Name" and "Description" to "draws" & "Contributions"?


2.) This causes the "Owners Equity" account to go into negative, and just continually grow with each draw taken. Is this normal?

3.) Some people have said to create a "vendor" account for myself, and just pay it from the equity account. Or, should I just manually add the transaction in my register, since I do all my banking transactions manually anyways?

I just don't want "end of year: to come, and my draws show as a deductible expense.


Some clarification would be greatly appreciated.

Solved
Best answer 10-15-2018

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Established Community Backer ***

"I am a sole proprietor and need to record salary draws."...

"I am a sole proprietor and need to record salary draws."

Right there is how this gets confusing.

You are not Getting a Salary; you are not on payroll and this is not Wages.

You get to take money any time you want to, as long as you judge the business can afford you to take the Money.

This is Draw, from Equity; not Salary.

"I'm seeing a lot of threads mentioning to create an equity account. One for draws and one for contributions."

Only because it is nice to have the Clarity of Ins and Outs in different accounts. You can use just One.

Equity is Equity, no matter how many accounts you use to slice and dice it for your own reporting clarity.

"1.) For "Detail Type", am I choosing "Owner's Equity" from the list and just changing the "Name" and "Description" to "draws" & "Contributions"?"

Sure.

"2.) This causes the "Owners Equity" account to go into negative, and just continually grow with each draw taken. Is this normal?"

You are Removing Asset. Asset = Liability + Equity.

Don't use that Chart of accounts view to understand Equity. Run a Balance Sheet report. What you are missing, when looking at the chart of accounts, is Current Net Income, which is contributing to Equity. You see that on your Report.

Think of it as, from the bottom of the P&L: "How well am I doing this Operating year?"

"3.) Some people have said to create a "vendor" account for myself, and just pay it from the equity account. Or, should I just manually add the transaction in my register, since I do all my banking transactions manually anyways?"

QB Online doesn't have "Other Names" and if you need to put this on a Check, you need Some sort of Name for the Payee = you as Vendor. You are not your own Employee.

"Some clarification would be greatly appreciated."

Don't get lost in terminology, and telling us you are running a Sole Proprietorship was the best way to start this topic. Thanks.


4 Comments
Highlighted
Established Community Backer ***

"I am a sole proprietor and need to record salary draws."...

"I am a sole proprietor and need to record salary draws."

Right there is how this gets confusing.

You are not Getting a Salary; you are not on payroll and this is not Wages.

You get to take money any time you want to, as long as you judge the business can afford you to take the Money.

This is Draw, from Equity; not Salary.

"I'm seeing a lot of threads mentioning to create an equity account. One for draws and one for contributions."

Only because it is nice to have the Clarity of Ins and Outs in different accounts. You can use just One.

Equity is Equity, no matter how many accounts you use to slice and dice it for your own reporting clarity.

"1.) For "Detail Type", am I choosing "Owner's Equity" from the list and just changing the "Name" and "Description" to "draws" & "Contributions"?"

Sure.

"2.) This causes the "Owners Equity" account to go into negative, and just continually grow with each draw taken. Is this normal?"

You are Removing Asset. Asset = Liability + Equity.

Don't use that Chart of accounts view to understand Equity. Run a Balance Sheet report. What you are missing, when looking at the chart of accounts, is Current Net Income, which is contributing to Equity. You see that on your Report.

Think of it as, from the bottom of the P&L: "How well am I doing this Operating year?"

"3.) Some people have said to create a "vendor" account for myself, and just pay it from the equity account. Or, should I just manually add the transaction in my register, since I do all my banking transactions manually anyways?"

QB Online doesn't have "Other Names" and if you need to put this on a Check, you need Some sort of Name for the Payee = you as Vendor. You are not your own Employee.

"Some clarification would be greatly appreciated."

Don't get lost in terminology, and telling us you are running a Sole Proprietorship was the best way to start this topic. Thanks.


Active Member

Re: "I am a sole proprietor and need to record salary draws."...

Hello:  I have a question about sole proprietor 'draws'....This year in QB oline, the Profit and Loss report is counting my draws as part of payroll expenses (as if I'm paying myself a salary).  This is really confusing and something must have been configured incorrectly.  I'm a sole proprietor and don't pay myself a salary.  How do I correct this report???  Thanks!!

Established Community Backer ***

Re: "I am a sole proprietor and need to record salary draws."...

Benny, if you see this on the P&L, you put it to the wrong "category." There is no Payroll Expense for your taking; it is Personal Draw and reduces equity. Payroll Expense = your Own employees, not You, for a sole proprietorship.

Experienced Member

Re: "I am a sole proprietor and need to record salary draws."...

So is it better to select "Personal" OR Business-Personal Withdraw