I’m using Tiller to pull from both my personal and business bank accounts. When I take an owner’s draw, it’s ultimately a transfer… but it’s both a business expense and my personal income. I’m not sure how to categorize or best keep track of my owner’s draw. Any advice?
This really has two answers and it depends on whether you are interested in only the P&L or both the P&L and the Balance Sheet (BS).
P&L only (Easy) - Draws do not impact the P&L, they are BS entries only. You can create two categories called Draw In (Personal) and Draw Out (Business). Draw In could be assigned to a Group called Personal and Draw Out to a Group called Business. Both would be assigned a type called Transfer, not Income and not Expense.
P&L and BS (Complex) - In addition to the above, you need to create two manual accounts, Investment In Business (personal asset) and Draw (business liability). Why liability? Since Tiller backs into Net Worth (really equity), any equity accounts you wish to track need to be liabilities (plus or minus depending on whether it is a debit or credit). These two manual accounts would need to be manually changed whenever a draw is made.
From an accounting perspective, here is what happens. You invest money in your business. Cash leaves your personal bank account and you create a personal asset account called Investment in Business. Cash comes into your business bank account and you create a business account called Owners Equity. The opposite happens when there is a draw. This is likely overkill for most users.
Let’s say you invest $1M in a business over 10 years, the profits and losses for all 10 years nets to zero, the business never borrowed any money, and you never took a draw. If it was me, I would want to see that $1M sitting on my personal BS which reflects my investment in that business.
I hope this helps.
this is brilliant advice! i will start with just P&L for now and build up to the balance sheet when i’m ready for it. thank you so much!