Everything You Want to Know
About Owner's Draw
Owner's Draw in QuickBooks - Introduction
How do I record a draw? I don't understand that it is classified as an equity account. Do I put it under an increase or decrease? Why doesn't it show up in my bank account register?
If you are a sole-proprietor, I recommend that you do the following:
1. Change the name of Retained Earnings to Owner's Draw. If you already have Owner's Draw, Owner's Investment, or other types of Sole Proprietor equity accounts, merge them with your new Owner's Draw account. I was taught that sole proprietors do not have Retained Earnings, and to have only a single Owner's Draw account for both additions and subtractions from equity for sole proprietors.
2. Turn of the Preference that warns when you use the Retained Earnings account.
3. Use the Owner's Draw (formerly Retained Earnings) account any time you remove money from your business for personal reasons, or any time you add personal money to the business. Adding money to the business includes spending personal money for business expenses. Removing money from the business for personal reasons includes any type of expense on the books that is for personal reasons. Can be a check, an atm withdrawal, a credit card charge, or any other time business funds were used for personal reasons.
As you use it, the Owner's Draw account will show as a negative. This is normal and perfectly acceptable. In fact, a positive Owner's Draw account is a potential red flag.
You won't need to worry about showing it as a positive or negative in each transaction. QuickBooks takes care of this for you as long as you using the right windows each time, like using the Write Checks window for removing money from the business checking account for personal reasons. In the lower half of the screen, scroll up to choose Owner's Draw.
I hope this was helpful.
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