How do I categorize paying myself in QuickBooks?
Paying yourself as a business owner can be a bit confusing, especially if you’re new to accounting software like QuickBooks. Properly categorizing these payments is crucial for accurate financial tracking and tax preparation. In this article, we’ll guide you through the process of categorizing payments to yourself in QuickBooks, ensuring that your financial records are organized and compliant with tax regulations.
Firstly, it’s important to understand the different types of payments you might make to yourself as a business owner. These include:
1. Salary or wages: This is the most common form of payment, where you receive a regular salary for your work.
2. Dividends: If you’re a shareholder in a corporation, you might receive dividends as a return on your investment.
3. Drawings: This is a non-accounting term that refers to the money you take out of your business for personal use.
4. Retained earnings: This is the accumulated profits of your business that you’ve decided to keep rather than distribute as dividends.
Now, let’s dive into the steps for categorizing these payments in QuickBooks:
1. Create a Payroll Account: Before you can categorize payments to yourself, you need to create a payroll account. Go to the Chart of Accounts, click on “New,” and choose “Payroll Account.” Give it a name like “Owner’s Salary” or “Owner’s Dividends,” depending on the type of payment.
2. Set Up Payroll Items: Next, you’ll need to set up payroll items for each type of payment. For example, create a payroll item for “Owner’s Salary” and another for “Owner’s Dividends.” This will allow you to easily categorize payments in the future.
3. Record Salary or Wages: When you pay yourself a salary or wages, record the payment in QuickBooks. Go to the Employees menu, select “Payroll,” and then “Payroll Center.” From there, you can enter the payment details, including the amount and the payroll account you created earlier.
4. Record Dividends: If you’re paying yourself dividends, you’ll need to record these separately. Go to the Chart of Accounts, find the “Dividends” account, and record the payment as a transfer from the retained earnings or another appropriate account.
5. Record Drawings: Drawings are typically recorded as a transfer from the retained earnings account. To do this, go to the Chart of Accounts, find the “Retained Earnings” account, and record the payment as a transfer to the “Drawings” account.
6. Review and Adjust: After recording the payment, take a moment to review the transaction to ensure it’s been categorized correctly. If necessary, you can adjust the categorization by editing the transaction.
By following these steps, you can ensure that paying yourself in QuickBooks is categorized correctly, making it easier to manage your finances and comply with tax regulations. Remember, accurate record-keeping is essential for the success of your business, so take the time to get it right.
