I started new business - sole proprietorship - and opened a business account. Now I have some money there and I would like to withdraw some for my personal use (as salary or just simply for me personally). What do I have to do? Do I have to write myself a check or I just take out the money? Do I have to document the withdrawal somehow?
Thanks for the advice.
Being that you are a sole proprietor, you can take money out of your business account for personal reasons. You would code those withdrawals to an "Owners Draw" account. This account is part of your equity. Be sure not to code these withdrawals to an expense account on the income statement. These withdrawals are not deductible expenses. Likewise - when you put personal cash into the business you would code those dollars to an "Owners Investment" account - which is also part of the equity section of the balance sheet. These $$ should never be coded to income - this would overstate your income - which you would never want to do. In my line of work, I find that a lot of sole proprietors do not understand these concepts because they have not been taught the proper way to do their bookkeeping by their accountant or tax advisor. I take a different approach when working with small business clients. Rather than just working around inconsistencies and errors in their financial statements, I like to teach my clients about proper bookkeeping. I believe that a little knowledge transfer goes a long way!
Let me know if I can be of further assistance!
Hibachi Bros. LLC
--My goal in life is to be as good of a person my dog already thinks I am.--