How to Record Owner's Draw in Quickbooks:- When a business owner withdraws money from the company bank account to pay personal bills or for any other personal purpose, the money is considered a draw on the owner's equity in the company. Setting up owner draw accounts and depositing money taken out of the business bank account for personal purposes to the draw accounts are required for recording draws in Quickbooks. Maintaining current and prior year draw accounts for tax purposes is also helpful.
Create a draw account. Select "Add" from the chart of accounts. "Owner's Draws" should be the name of a new "Equity" account. If there are multiple owners, create individual draw accounts for each and label them with the owner's name, such as "Smith Draws."
Checks must be posted to the account to be drawn. Post a cheque written to the owner for personal purposes to her draw account upon entering it. A check made out to the owner will be debited from her draw account and credited to the correct bank account. Both accounts are balance sheet accounts, as you can see. The company does not record any expenses.
All personal charges should be deposited into the draw account. Post the debit transaction to the owner's draw account if he uses a business debit card for personal expenditures. Charge the charge to the owner's draw account if he uses a business credit card.
At the start of the following year, create a "prior year draws" account. Knowing how much the owner has taken in draws for the current year can be useful for tax purposes. Making a general journal entry at the beginning of each year transferring the balance in the owner's draw account into a separate owner's draw account labeled "Prior year draws" is one approach to do this. To minimize misunderstanding, rename the owner's draw account "Current year draws." Set up prior and current year draw accounts for each owner if the company has more than one owner. Transfer the balances from "Current year draws" to "Prior year draws" at the start of each succeeding year. Only "Current year draws" should be used to upload draws for the current year.