Drawings

[Mike or Penny Novack]

Cam Ellison wrote:

>Chris Dennis wrote:
>  
>
>>Hello folks
>>
>>I run a small business and use GnuCash to do the sums.
>>
>>What's the best way to account for 'Drawings', i.e. the money that I 
>>take out of the business?
>>
>>I've been using an account called Equity:Owner's Equity:Drawings, and 
>>transferring money from my bank account and petty cash as required. 
>>That's fine, but the amount in the Drawings account just keeps getting 
>>bigger and makes the balance sheet meaningless.
>>    
>>
>It should be expensed - this is not equity; it's cash flow.  An easy way 
>to deal with this is to use the Edit function to change the 
>superordinate account to Expenses.
>  
>
Nope -- Chris is correct that "owner's drawings" are a reduction in 
equity (for a sole proprietorship). Not an expense of the business. The 
business makes X amount profit. Whether the business owner leaves all of 
that invested in the business or withdraws some of it a whole different 
matter.

Chris, if this is making the balance sheet meaningless there is 
something wrong about how you have things set up in terms of 
accounts/parents/subaccounts in the equity tree. The way I would tackle 
this personally is by a model using old fashioned "pen and ink on paper" 
accounting and then that should make it clear how you want to set up the 
GnuCash accounts. In other words, once you know how to do this ala 
"accounting for the sole proprietorship" should be easy to find books) 
it won't be that hard to automate via GnuCash.

But then I'm one of those people who believes that you have to know HOW 
to do accounting before you can take advantage of a system that 
automates parts of the process for you.

Michael

-- 
There is no possibility of social justice on a dead planet except the equality of the grave.