Take the Money and Draw

One of the most common mistakes small business owners make is in how they record personal withdrawals of money from their business. One incorrect approach is to include their personal bank account in their business books, and when they take money out of the business, they record it as a transfer to their personal bank account.

Such withdrawals should actually be recorded as a draw, and should be posted to an Equity account. (You should have one of the following on your Chart of Accounts in your accounting application):

  • Owners Draw (Sole Proprietorship)
  • Members Draw (LLC)
  • Shareholder Distribution (S Corp)

This approach requires a bit more work, but it brings you into compliance with Generally Accepted Accounting Principles (GAAP).

Posted in Accounting Principles.