If you have opened your Xero chart of accounts and found a code called Owner A Drawings, and you are not sure what it is for or whether you should be using it, you are in the right place. It is one of the most common questions we get from business owners running their own Xero file.
Owner A Drawings is one of the accounts that comes with Xero’s default Australian chart of accounts. It is there to record money the owner takes out of the business for personal use, as distinct from money paid out as wages or spent on business costs.
The “A” simply distinguishes the first owner from a second. If a business has two owners taking drawings, you would normally see Owner A Drawings and Owner B Drawings so the two are tracked separately.
It is an equity account, not an expense account. That distinction matters, because coding a personal withdrawal as a business expense overstates your costs and understates your profit, which is a problem at year end and a bigger problem if the ATO ever looks.
How drawings are treated for tax depends on how your business is set up. A sole trader, a partnership, a company and a trust are all different, and in a company a withdrawal may be a loan, a wage or a dividend rather than drawings at all. If you are not certain which applies to you, ask before you code a year of transactions to it.
When to use it, and when not to
As a general rule, Owner A Drawings is for money leaving the business for the owner’s personal benefit. That includes transfers to a personal account, personal spending on the business card, and personal items bought with business funds.
It is not the account for a wage paid to the owner through payroll, for a genuine business expense that happens to be paid personally, or for a loan to or from the business. Those belong elsewhere, and getting them mixed up is the single most common coding problem we see in owner managed Xero files.
The rest of your chart of accounts
Your chart of accounts is the list of codes you and your accountant use to classify every transaction. It sounds dull, and it is the most powerful reporting tool in your file. Xero ships with a default Australian chart, and most businesses never touch it, which is why their reports never tell them anything useful.
Xero lets you rename codes, add your own, and archive the ones you will never use. With a chart set up for how your business actually works you can:
- Code every transaction to something meaningful, rather than dumping it in General Expenses
- Split revenue by stream, so you can see which part of the business is actually making money
- Separate cost centres, jobs or vans, so you can see where the margin is going
- Produce reports that answer a question you actually have
A word of caution before you start renaming things
Changing codes that already have transactions against them affects your comparatives and your reports. If you are mid year, talk to whoever prepares your accounts before you restructure the chart, or you will spend the difference sorting it out at year end.
Getting your chart set up properly
We set up and tidy Xero charts of accounts for trade and small business owners across Albury Wodonga. If your reports are not telling you anything, the chart is usually why.
See our Xero partner page, our bookkeeping service, or read about lodging your BAS online once your coding is right.
Is your software telling you anything useful?
If your reports do not answer the questions you actually have, the setup is usually why. We sort that out for trade and small business owners across Albury Wodonga.
