How do I Enter the Owner's Draw in QuickBooks Online?

An owner’s draw is when an owner takes money out of the business. Typically this would be a sole proprietorship or LLC where the business and the owner are considered the same for tax purposes.

This is different from earning a salary from an incorporated business or being paid dividends. If you are not sure what I am talking about, call your accountant!  It is very important that you understand the ramifications of any funds you withdraw from your business.

In this video, and the steps below, we are entering amounts withdrawn by an owner of a business.

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You may need to set up a new category in your chart of accounts.

You can then record any owner’s draws using the transfer function.

In this example we are transferring $1,000 from our checking account to ourselves, and recording it as an owner's draw.

The Owner's Draw will appear on our balance sheet as amounts taken from the business:

Keep in mind that this account will continue to increase over time. If you are looking at a report for the current year, it will include all of the amounts drawn from the business over all years.

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Video transcript

Hi, Kerry here from My Cloud Bookkeeping. I often get asked, “how do you record an Owner's Draw in QuickBooks”? So, first of all, let's talk a little bit about what an Owner's Draw is and what it means. When you remove money from your business, now, typically this will be a soleproprietor or an LLC, we're not talking about incorporated businesses here. It's just when the business is kind of an extension of yourself and you're taking money from the business, this is not salaries or dividends. And if you wanted to know the best way to take money from your business, definitely talk to your accountant. But if you have an owner's draw and you know what that is, and you'd like to know the best way to record it in QuickBooks, watch on.

So, here we are in the sample company and let's take a look in our chart of accounts. Now we get to that by going here and chart of accounts, I have one open on this tab, so we'll pop to here. I'm going to scroll down. You might notice the balance sheet accounts are the ones that appear first, so we're looking at our bank and our accounts receivable assets, we’ll scroll down past the liabilities to the equity section. Now in the sample company here, we only have opening balance equity and retained earnings. So let's make a new account. So scroll back up here and say new, and we'll make this an equity-type account. I'll explain that further in a minute. And then for the detail type, we just select the best fit. So let's have a look and let's just go for owner's equity or personal expense, whatever you'd like to call it. So we're going to leave this as owner’s equity and just save and close.

So now we're going to enter the draw because we're taking funds from our business and it's not an expense to the business. We use an equity account, which is a balance sheet account. So what that means is it won't show up as an expense on our profit and loss or income statement. If you're not sure what these reports are, check out my old videos on balance sheets and income statements, the links are above. So when you’re moving funds from one balance sheet account to another, you can use the transfer function.

So if we pop up here instead of using expense, we have the option under other here to transfer. So we're going to transfer the funds from our checking account, into the owner's equity account that we just created. We enter in the amount that we're transferring to ourselves $500, $5000, whatever that is. And one of the beauties of using this transfer function is we don't have any of these sales tax implications. If you were using the expense form to do this, adding it from the bank feed, and for some reason, you didn't want to use the transfer function, the sales tax that I would choose is out of scope. Whatever is your option for not impacting sales tax, because this is not something that should have sales tax implications. So here we go, we've created our transfer. We're taking the money from the checking account to ourselves, and we're going to save and close.

If we have a look down in our equity section, we can see that there's $500 has been taken out of the business. So we have a quick look at the balance sheet, we'll be able to see how that looks as well. We scroll down and here's our $500. Now keep in mind, because this is a  account, it's going to increase over time. It's not like your profit and loss where it just, you look at it for the month and then the next month it’s zero again. If you take another $500 out, the balance of this will be $1,000. So at any point in time, you're going to be able to see how much you've withdrawn from the business by looking at the balance sheet or in the chart of accounts.

Hopefully, that'll take the mystery out of entering your Owner’s Draws in QuickBooks. If you have any other questions about how to do these things in QuickBooks, do please reach out. If you want to know how to record salaries or dividends, let me know, I can make another video. And if you're not too sure what you should do, once again as I mentioned earlier, do speak to your accountant, they have a picture of your whole business, and they can help you to make the best decisions for your taxes, your life, everything.

If this video was useful, please do click like, subscribe to my channel, and I hope to see you again soon.

Cheers.