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Community > Accounting >

Owner Drawings

Started by George Goosen -   in Accounting

Please can someone help with my understanding.

The scenario is as follows.

On occasion i will need to use my personal credit card to pay for a business expense. I normally put this through on the xero app as an expense with receipts etc and the expense it.

When it comes to the system side, i go through and approve the payments with the payment coming out of the "owners drawing account"
Looking at the GL this comes through as a DEBIT in the accounts Owner Drawings? Is that correct?

My intention is to leave that balance as it is, when (if) the company ends up making any money and i decide to take some money out in the future i will then offset this drawings account with what i take out. Assuming that will be a CREDIT value in the Owner Drawings account.

Is that correct?

Hi George,

If you're putting money into the business (i.e. paying business expenses personally), then it should be going into owner's equity or an owner's loan account (your accountant can give you the best advice on which is best for your circumstances) - especially if you're planning to leave the balance there for future offset. Drawings is meant to be a holding account for money taken out of the business, so it should be cleared to offset a loan or equity (or recorded as the director/owner's income) at the end of the financial year, so there shouldn't be a balance being carried over.

Speaking of which, money taken out of drawings is usually a debit, so the fact that putting money in is appearing as a debit makes me think something is not being recorded correctly (or I'm not understanding something about what you're doing). I don't use the expense feature of Xero, so it's hard for me to comment in more detail on your method; however, to keep things simple and transparent, for these types of transactions I usually create a credit card liability account called "owner personal" to pay the expenses/invoices out of and then I periodically (however often is needed, might be done annually if I'm not producing proper monthly financials) journal the balance of the account to the director's loan or equity, as preferred by with their accountant.

Zosia Romanowski