Las Vegas CPA Q&A: Draws from a Business
Q: My business is starting to do well and has some extra cash in the bank account that I’d like to draw out. How do I go about drawing cash from my business?
A: As the owner of the business, you can take draws (also called distributions or dividends) from your business simply by writing a check from the business to your name.
The transaction should not be classified as an expense. Draws should be recorded in an equity account on the balance sheet called either draws, distributions, or dividends depending on your business structure. This account is also appropriate for recording any personal expenses paid by the business checking account. However, as I wrote in an earlier post with accounting tips for new businesses, keeping business and personal financial activity in separate accounts is a good practice.
Disclaimer: In certain situations, draws can result in a taxable event (for example, due to basis issues in a partnership). There may be tax issues to consider when drawing money from a business that has more than one owner. If your business is a corporation, you may want to consider taking money out as salary rather than distributions. Be sure to consult with your tax advisor or with us, your Las Vegas CPAs.