How-To Guide

How to record an owner’s draw in QuickBooks Online

Taking money out of your business for personal use? That’s an owner’s draw, and recording it correctly keeps your books clean and your profit accurate. Here’s how to do it in QuickBooks Online, step by step.

First, what an owner’s draw actually is

A draw is you paying yourself, not a business expense.

When you take money out of a sole proprietorship, partnership, or single-member LLC for personal use, that’s a draw. It reduces your equity in the business, it isn’t an expense, so it should never hit your Profit & Loss. Recording it as an expense is one of the most common bookkeeping mistakes, and it makes your profit look smaller than it really is.

Because a draw isn’t an expense, you record it against an equity account (usually called Owner’s Draw or Owner’s Equity). Here’s how to set that up and record it.

Step by step

  1. Make sure you have an Owner’s Draw equity account

    In your Chart of Accounts, look for an account named Owner's Draw or Owner's Equity. If you don’t have one, create a new account with the account type set to Equity and a name like “Owner’s Draw.”

    Chart of Accounts is generally found under Settings (the gear icon) or in the accounting/bookkeeping menu.

  2. Record the money leaving your business

    When you pay yourself, record it as a check or expense transaction from the bank account the money actually came out of. The key is the category, not the transaction type.

  3. Categorize it to the Owner’s Draw account

    In the category or account field of that transaction, choose your Owner’s Draw equity account, not an expense category. This is the step that matters most.

  4. Save, and confirm it didn’t hit your P&L

    After saving, glance at your Profit & Loss for the period. A correctly recorded draw won’t appear there at all. If it does, it was categorized as an expense by mistake, go back and fix the category.

A quick note: QuickBooks Online updates its menus and labels periodically, so the exact wording or location of a button may look a little different from what’s described here. The concepts, using an equity account and categorizing the draw to it, stay the same regardless of where the buttons move.

Common mistakes to avoid

  • Categorizing a draw as an expense. This understates your profit and throws off your reports. A draw is equity, not an expense.
  • Confusing a draw with payroll. If your business is an S-corp, paying yourself usually works differently (through payroll as a salary). Draws are for sole props, partnerships, and most LLCs.
  • Not recording it at all. Money that leaves the account without a category becomes an uncategorized mystery that muddies your books.

Want a pro to check you’re doing this right?

If you’re keeping your own books but want an expert to confirm your setup or walk you through the tricky parts, our bookkeeping consulting gives you one-on-one time with our Bookkeeping Manager, guidance without the cost of a full-time bookkeeper.

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This guide is general information, not tax or accounting advice. How you pay yourself can depend on your business structure. When in doubt, confirm with a professional.

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