Hi all, I am hoping someone would be good enough to clarify something to me about drawings that are made from a business account. At the end of the year would the drawings figure come off the profit figure or would it be taken off later. i have been thinking about it and i am sure it would be after the profit has been calculated but would be grateful if someone could confirm this.
I am new to bookkeeping and i am managed to teach myself enough to get thriugh the ICB level 1 with a distinction and i am trying to teach myself level 2 .Drawings are mentioned in the level 1 paper but only briefly and it doesn't show what happens to them at the year end.
Sorry if this sounds a silly question but any halp would be great thanks doug
it may seem as though the drawings are against profit but that's not quite the case. They're actually against the capital account.
What actually happens is that accumulated profit is added to the capital and reserves and then drawings are taken against that.
Take a quick example.
Calculate the profit for the year in the P&L of say £13000
In the balance sheet right at the bottom of it you have the capital account which can include all sorts of things but taking a simplest case lets say it includes only the opening balance of £9500.
The net profit for the year from the P&L appears below this. The two are added together and then drawings are taken from that. leaving the closing balance for the year.
Here it is as an example (hope that the formatting stays).
P&L
Balance Sheet
£
£
13,000
Capital Account
Opening Balance
9,500
Net Profit For the Year
13,000
22,500
Less Drawings
(14,000)
Closing Balance
8,500
Hope that this makes sense,
Shaun.
Well, most of the formatting stayed but all of the lines disappeared. Still think it's readable though.
-- Edited by Shamus on Friday 5th of February 2010 09:34:15 AM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hello Shamus, Thanks for your help it has made it all clear now. i am surprised that sage doesn't have a nominal code for drawings i am using 3100 to post drawings to do you think that would be ok.
I'm no great fan of Sage as in many cases it seems to be using a one size fits all sledge hammer to crack a nut but, 3100 sounds fine and is the one most often used as that is in the correct area of the accounts.
cheers,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hello Shamus, Thanks for your reply it has helped to clear up some confusion . I think i will possibly stick with sage to get through the level 2 and then look at other alternatives .
