QB Q&A: Help with Owner's Draw

Michael writes:

I'm a bookkeeper who has a new client. This new client reports owner’s draws of $16,400 through August, but I don’t know from which account. I’m thinking I should debit Owner’s Draw and credit Opening Balance Equity, but I’m not sure. What do you think?

My reply:

First: do not debit owner's draw and credit Open Bal Equity.

Second: I find it unusual that your client has kept such good track of the actual draw. But has she kept track of the other side of the draw transaction?

• Credits to the bank account for cash transfered to a personal account
• Credits to the bank account for debit card purchases for personal expenses
• Credits to the bank account for checks written for personal expenses
• Credits to the business credit card account for personal expenses
• Other balance sheet credits that are for personal expenses

Owner's draw is computed as the result of one of these types of transactions. It's THOSE transactions that concern me, since they directly effect a bank or credit card reconciliation.

Do you see where I'm going? If the bank and credit card accounts are set up correctly, with the correct detail, then the owner's draw will become apparent.

It would be best to set up the other balance sheet accounts as accurately as you can, with the correct detail. Then owner's draw account will take care of itself.

The short answer is: don't start with owner's draw. End with it.