3900 — Owner's Draw

Owner's Draw is the second contra account in this chart, alongside Accumulated Depreciation, and it deserves the same plain explanation. It sits in the equity section, right next to Owner's Contribution, but it moves in the opposite direction from every other equity account: a debit here increases the balance, not a credit. Money the owner takes out of the business is what grows it.

This matters most in a sole proprietorship, partnership, or single-member LLC without formal payroll for the owner — there, a draw is effectively the owner's own paycheck, but it is not wages, and it is not a business expense. It is a distribution of profit that has already been earned and, in most structures, already taxed to the owner personally regardless of whether it was actually withdrawn. Recording it as an expense would understate the business's real profit.

The one case that genuinely differs: an owner who is properly set up as a W-2 employee, typically in an S-corp structure, is paid through Payroll (6700) instead of a draw — a real distinction with real tax consequences, and one worth confirming with an accountant rather than assuming which applies to your situation.

Where it shows up

Sits in the equity section of the balance sheet but carries a natural debit balance, the opposite of every other equity account there — a debit (money out) increases it, which is why a report shows it as a negative-looking number next to Owner's Contribution and Retained Earnings, worth remembering the first time it looks like a mistake. Draws reduce total owner's equity continuously as they post, alongside contributions and profit — there is no year-end step that applies this; it is reflected the moment each draw is recorded.