How to make capital contributions and owner draws

One of the most confusing things for new business owners can be knowing how to get money in and out of their business. Most new businesses lose money in the year of their inception. As a result, there are bills to pay, but no money in the bank account. Often the new business owner does not know how to bring money into the business to pay necessary bills or how to record the money coming in.

There is a simple answer for this. All the business owner needs to do is deposit money from a personal account into the business account. This is called a capital contribution. It is not income for the company. It is a capital account that appears on the balance sheet.

Once the business begins to turn a profit and capital contributions are no longer required, the exciting time comes when business owners can take money out of the business. For some new business owners, this can also be confusing. We had a client who had forty thousand dollars in her business account at the end of the year because she didn’t know how to get it out.

Taking money out of your company is as easy as making a capital contribution. Just write yourself a check and report it as a landlord draw. An owner draw is also a capital account and will appear on the balance sheet. It is important to record these withdrawals as an owner withdrawal because an owner withdrawal is not an expense to the business.

So moving money in and out of your business is as easy as writing a check or making a deposit. What can be a bit tricky is knowing how to record transactions in your accounting software.