Owner's Draw setup under Equity group

[Adrien Monteleone]

Michael & David,

Applying this then to the original post, the structure should be:

Equity
Equity:Owner’s Capital
Equity:Owner’s Capital:Owner’s Draw

Correct?

I went back to my accounting textbook and some online searches. I’m going to stick with my original stance, and original understanding of the question, that indeed the Owner’s Draw account is temporary with paper books. (And can be as well with computers if a period closing is performed) Owner’s Capital is a permanent account, Draw is not.

Equity:Owner’s Capital:Owner’s Draw (or same level as ‘Owner’s Capital’ if desired) is a temporary contra account.
It is ‘contra’ because it normally has a debit balance, rather than a credit balance as other equity accounts normally have.

It is closed to the Owner’s Capital account at the end of the period. (usually annual)
If an owner draws say, $2000 per month for personal expenses from the business, each month would see this entry:

Dr.	Equity:Owner’s Capital:Owner’s Draw	$2000
	Cr.	Cash				$2000

At the end of the year this entry would close out the temporary Owner’s Draw account:

Dr.	Equity:Owner’s Capital				$24000
	Cr.	Equity:Owner’s Capital:Owner’s Draw	$24000

The advantage, in GnuCash, to placing the Owner’s Draw account as a sub-account of Owner’s Capital is one can see the balance of the Owner’s Capital account if desired at any time without having to calculate it or perform a closing entry.

-Adrien



> On Mar 14, 2017, at 11:00 AM, gnucash-user-request at gnucash.org wrote:
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>   1. Re: Owner's Draw setup under Equity group (Mike or Penny Novack)
> 
> From: Mike or Penny Novack <stepbystepfarm at dialup4less.com>
> Subject: Re: Owner's Draw setup under Equity group
> Date: March 14, 2017 at 8:02:10 AM CDT
> To: gnucash-user at gnucash.org
> Reply-To: stepbystepfarm at dialup4less.com
> 
> 
> On 3/14/2017 2:23 AM, DaveC49 wrote:
>> Ina private email Brian Hagen asked:
>> 
>> D
> 
>> A contra account is one that is set up in conjunction with another major
>> account.  The two accounts are usually sub-accounts of a header account
>> which sums their balance and this is how you can typically set them up in
>> Gnucash.
>> 
>> A fairly typical example of the use of a contra account is a depreciating
>> asset e.g. a car. For an asset one usually needs to record the initial
>> purchase price  the depreciation on of the vehicle and the current
>> depreciated value. An account structure to achieve that would be:
>> 
>>     Asset:Car
>> 
>>    Asset:Car: Depreciation
>> The depreciation account Asset:Car:Depreciation is a sub account of
>> Asset:Car and its balance sums into the balance of Asset:Car.
> The more general method, where it is possible that there might be later increases to the basis, would be:
> Asset:Car (parent, placeholder)
> Asset:Car:Basis
> Asset:Car:Depreciation
> That makes it easier to see what the basis is at any time. Suppose that were a house instead of a car. While much of what you spend on a house would be/should be classed as expenses, some major things that change, improve, extend the life of that asset would be/should be considered an addition to the basis. For example, replacing the old windows with modern double pane ones, building an extension, etc.
> 
> For consistency, I treat all fixed assets subject to depreciation the same (even when for that particular fixed asset, a later increase to basis is unlikely)
> 
> Michael D Novack
> 
> 
> 
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