Owner's Draw
Definition
Money an owner takes out of the business for personal use. In sole proprietorships and partnerships it reduces equity; S corp owners usually take distributions plus a salary.
Want a deeper explanation?
Draws do not show on the P&L, which is why a profitable business can still run short of cash. They are one of the first things to check when cash does not match profit.
Planning draws around inventory cycles and taxes avoids surprises. Watch for: draws coded as expenses, which understates profit and can create tax problems.
Example
An owner takes $8,000 a month in draws. It is not an expense on the P&L, but it lowers cash and owner's equity on the balance sheet.