Sometimes a business owner will have to make cash withdrawals from their business account. Whether the purpose is to pay themselves, or to have cash on hand for making change, it is necessary to remove the cash and to record the withdrawal in the QuickBooks software to reflect the account from which the withdrawal was made and the "account" into which the cash was "deposited." If the business is a sole proprietorship, this withdrawal would be called a "draw." If the business is incorporated, this would be a "distribution."
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Create an equity account named "Owner Draws." To do this, open the "Chart of Accounts" by clicking "List" on the top menu bar. Scroll down to the "Chart of Accounts" option and click it.
Hold the "Ctrl" and "N" keys. Under the "Type" of account menu, locate "Equity" and click it, then click "Continue." The "Add new account" window will open.
Enter the term "Owner's Draw" into the "Account Name" box. If the business is incorporated, use the term "Shareholder Distributions." Adding the description and note portions is optional. Leave the "Tax-Line Mapping" box blank unless you are familiar with accounting terms used on tax returns.
Click "Banking" in the top menu bar. Scroll down to the "Transfer Funds" option and click it. When the "Transfer Funds" window opens, enter the details of the transfer from "Checking" to the "Draws" account.
Choose the "Checking" account in the "Transfer Funds From" box. Click the arrow and scroll down to the "Checking" account. Choose the "Draws" account for the "Transfer Funds To" box. Click the arrow, scroll down to the "Draws" account and click it.
Enter the amount of cash withdrawal into the "Transfer Amount" box. Click "Save & Close" to close out the window.
Create a new bank account. Click "Lists" in the top menu bar, and then click "Chart of Accounts." When the chart of accounts opens, hold the "Ctrl" and "N" keys to create the new account.
Choose "Bank" under the type of account option. When the "Add new account" window opens, enter the term "Petty Cash" into the name box. This account will be for keeping cash on hand to make change or purchases when a check book or credit card is not handy.
Transfer funds for the withdrawal using the same method as the "Draw" account. Or, issue a check from the current account payable to the "Petty Cash" account. To do this, open the register in the "Checking" account. Open the "Chart of Accounts" screen again.
Scroll down to the "Checking" account in the "Chart of Accounts" list. Double-click on the "Checking" account, which will open the register. The last line in the register will enable you to enter a new transaction.
Enter the date of the cash withdrawal. Enter your name in the "Payee" box and the amount of the withdrawal in the "Payment" box. In the "Account" box, click the arrow and scroll up to find the "Petty Cash" account you just created. Click "Record" and the transaction is complete.
Tips and warnings
- QuickBooks has a feature which allows you to make a cash withdrawal from deposits of cash made. There are two problems with that: First, most banks will not allow a cash withdrawal from a deposit made to a business account. Second, to make bank reconciliations easy, it's best to keep your cash withdrawals separate from your business deposits.
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