Glossary / Owner's draw · Also called drawings, owner distribution, owner withdrawal

How it works

Owners of unincorporated businesses do not pay themselves wages in the usual sense. They transfer money from the business account to their personal account when they need it, and the books record it in an equity account called Owner's Draw.

Recording a draw as an expense is a common mistake. It makes the profit look smaller than it is, and the tax return will be wrong. The opposite flow, putting personal money into the business, is an owner contribution and also goes to equity.

Worked example: A year of draws

A freelance photographer earns $70,000 of net profit in a year and transfers $3,500 a month to a personal account, $42,000 in all.

The draws reduce equity by $42,000, but taxable business profit is still $70,000. The $28,000 left in the business increases equity and is available for equipment or a slow month.

In the US and in Canada

In the United States

Sole proprietors and partners take draws; their profit is taxed on Schedule C or through the partnership return, and self-employment tax applies to the profit, not the draws. S corporation owners who work in the business are expected to take a reasonable salary through payroll as well as any distributions.

In Canada

Sole proprietors and partners report business income on Form T2125 and pay tax on the profit; drawings are not deductible. Owners of a corporation are paid by salary or dividends instead, because the corporation is a separate taxpayer.

In AcboBooks

The starter chart has an Owner's Draw equity account (3200). A cheque or transfer to the owner posted to that account reduces equity on the Balance Sheet and does not appear on the Profit & Loss.

Related terms

Related on this site

Sources

Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.

Back to the full glossary

Owner's draw