Withdrawing Salary from Owner's Equity Account

Withdrawing Salary from Owner's Equity Account

Question During a discussion with my accountant in the United States, I was advised that as the single member of my company, I should not pay myself a salary that would affect the direct expenses account, but rather take a "draw" that affects the balance sheet and not the costs. Can you please advise how I should set this up in ERP Next please?

Answer 1.Establish a liability account for Owner's Equity if you do not already have one. This account will contain your business investment and accrued profits (or losses). It will have a balance of type "Credit."

2.Version 5 Equity will have a new leader (not under Liabilities). (In any scenario, Assets equal Owner's Equity plus Liabilities, thus your balance sheet is in good shape. See more about the owner's equity account.

3.Establish an Owner's Draws account under Owner's Equity.

4.Notice that the Owner's Draws balance will always be negative because you are deducting funds from your total equity/profits.

Example

For a withdrawal of $1000, an example journal entry (using Journal Voucher in ERPNext) might be:

1.Credit Cash $1000

2.Debit Owner's Draws $1000