What's the best way to set up Owner's draw? It's a contra-equity account. I had to set it up as an equity account. I rec'd a message that QB doesn't like that categorization, but it let me do it. It doesn't close out Retained earnings automatically at year end. Is there a better way?
Only Income Statement Accounts close out to retained earnings.
This is a common way to setup your equity accounts:
Retained Earnings
Owner's Equity (Parent Account)
----Contributions (Sub-Account)
----Draws (Sub-Account)
Contributions will have a positive balance and this is where you enter money invested by you into your company and for company expenses paid from personal funds.
Draws will have a negative balance and are for withdraws from the company accounts for the owners personal use or the payment of personal expenses by the company.
The names here apply to a sole proprietorship, for partnership you would want to setup a set of these for each partner and for Corps use Shareholders instead of Owners.
Hope this helps, if you need more specific information, you can contact me by clicking on my name or picture.
thanks for this, very simple explanation.
I was wondering if I would do the same for an LLC?
Also, how do I report the draw/contributions on my tax personal & business tax returns?
Everytime I draw money to my personal account as an owner, how would I report that, as standard income?
And how would it be reported on the business' side? Would the total of equity draws considered a business expense? And whatever the case, how would I report it.
Thanks in advance!
