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Need to make sure I'm handling Owner Equity and Owner Draw correctly

I understand the basic differences between these two accounts, and as a sole owner LLC, I have both an Owner Draw, and Owner Equity account set up (both account types equity).

I recently did a couple of transactions which made me wonder if I'm handling these correctly in QB.

I had a customer pay in cash, $4000.  I deposited $3000 of that in my bank account.  On the Make Deposits screen, I selected the customer, then at the bottom, I chose "cash back goes to <owner draw account>", then entered $1000 for the cash back amount.  I think that much is correct.  However, today I deposited (2) more cash payments, and I Decided that I would also include some of the $1000 I held back from the last deposit.  How I handled this, was I put a check mark next to both customer names in the deposit list, then on the next blank line, I entered my name as the Payee, and in the next box "deposit from", I chose <owner draw> account.  Is that correct?

I was looking at my owner draw account in Chart of Accounts, and I noticed that almost all of the transactions are in the "decrease" column, except for a few which are in the "increase column".  The Owner Draw account is negative.


Thank you.

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Best answer 12-10-2018

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Established Community Backer ***

You have it basically right. Any money you draw out of th...

You have it basically right. Any money you draw out of the business for personal use during the year is <Owner Draw>. Because of the nomenclature of LLC and that you are considered a "member" I always call it <Member Draw> but that is semantics as long as you know what you are dealing with.

I do directly "reduce" or reimburse the draw when I put money back in but to be accountingly correct  you should have a corresponding <Owner or Member Contribution> equity account where all money in goes. 

Yes, Member Draw is a negative number since it represents money taken out of the business.

Once a year, upon closing the books, <Member Draw> should, along with the fiscal Profit or Loss, get posted to the overall <Owner/Member Equity> account, leaving the Draw account fresh at zero for the next year. At year end you are passing through the P or L to your 1040.

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Established Community Backer ***

You have it basically right. Any money you draw out of th...

You have it basically right. Any money you draw out of the business for personal use during the year is <Owner Draw>. Because of the nomenclature of LLC and that you are considered a "member" I always call it <Member Draw> but that is semantics as long as you know what you are dealing with.

I do directly "reduce" or reimburse the draw when I put money back in but to be accountingly correct  you should have a corresponding <Owner or Member Contribution> equity account where all money in goes. 

Yes, Member Draw is a negative number since it represents money taken out of the business.

Once a year, upon closing the books, <Member Draw> should, along with the fiscal Profit or Loss, get posted to the overall <Owner/Member Equity> account, leaving the Draw account fresh at zero for the next year. At year end you are passing through the P or L to your 1040.

View solution in original post

Not applicable

So, normally if I were to just deposit personal money int...

So, normally if I were to just deposit personal money into the bank, for example, if I load my company $1000, that should post to the <owner equity> account correct?  But, since I only have the option in the deposit screen to choose an account to deposit FROM, I was alright choosing the <owner draw> account correct?

In the end, depositing money to <owner equity> is the same as depositing money to <owner draw> no?

I have never balanced my equity accounts in the past.
Established Community Backer ***

Well, sort of, since it is all reflective of your equity,...

Well, sort of, since it is all reflective of your equity, but closing profit to <owner equity> and keeping the draw separate, but closing it to <owner equity> will give you a much clearer picture of the health of the business, not to mention you may need to include your equity stake in an annual tax return

Keep <owner equity> as the overall equity account and I suggest only posting to it on an initial or annual basis. Add a <owner contribution> account if you want to keep draw in and out separate but in reality since the LLC passes through everything the draw is tantamount to an advance against year end profit pass through and a negative draw (money put back in) works just fine (and my tax accountant signs off)
Not applicable

OK, so my last question is:  Was I correct when I deposit...

OK, so my last question is:  Was I correct when I deposited personal money, when having to choose the "account to deposit from", I chose "owner equity"?  This is based on the fact that I do not currently have an overall equity account, I have only equity in, and equity out accounts.
Established Community Backer ***

"I was looking at my owner draw account in Chart of Accou...

"I was looking at my owner draw account in Chart of Accounts, and I noticed that almost all of the transactions are in the "decrease" column"

Taking funds = removing value. This is:

Assets= Liab + Equity

Removing asset = Decreases your Equity. Equity = Ownership Position.

"except for a few which are in the "increase column".  The Owner Draw account is negative."

Don't worry about that negative. Run your Balance Sheet, to see the full picture.

You are overlooking that Net Income is contributing to Equity; you cannot see this by looking at your Infrastructure = chart of accounts. Run Reports. Like this:

I took $10,000 draw, so that is negative for the year. But the Balance Sheet also shows Net Income is $50,000. Total Equity = $40,000. My ownership position is fine. Equity can also be referred to as Net Asset (asset minus liability).

QB will "close" net income to Owner Equity for you. You can close Draws, as well, on the first date of your new fiscal year. That way, the Chart Of Accounts shows only the current year Draws.


Not applicable

Thank you.

Thank you.
Established Community Backer ***

"Was I correct when I deposited personal money, when havi...

"Was I correct when I deposited personal money, when having to choose the "account to deposit from", I chose "owner equity"?  This is based on the fact that I do not currently have an overall equity account, I have only equity in, and equity out accounts."

Yes.

I see my additional answer previously provided has been marked Not Helpful. If something is not clear, please ask and don't Vote Down the input from volunteers. Thanks.


Not applicable

You've answered many of my questions on here, and frankly...

You've answered many of my questions on here, and frankly, you're brilliant.  I had already chose another answer as being helpful before you posted yours.  Unless there is a way to mark *both* answers helpful?  I very much appreciate your time and knowledge.
Established Community Backer ***

Helpful is Up/ or Down. Recommended is different. So, Not...

Helpful is Up/ or Down. Recommended is different. So, Not Helpful is counted against our frequent flyer miles :smile:

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