I promise that this is my last question for a while.
Here is the situation - I have a self employed person with a newly set up business with effect from January this year.
All the business expenses so far, she has paid using her own money, out of her personal bank account, credit cards and cash (she is in the process of setting up a business account).
I have entered all her expenses in VT Cashbook under a new bank account sent up called Owners Account (money she has paid out of her own pocket for business expenses).
All the sales that she has made have mostly been in cash so I have entered them into the Cash Account. From the money of these sales, she has been putting the money into her personal account. She hasn't taken any money out for herself as in paid herself. The money has been used to pay expenses.
At the moment now I have an amount in the Owners Account showing personal money that she has paid and that I am going to transfer into the capital account. I also have money in the Cash account for sales received but the money is now in the personal bank account and paid back out again.
What do I do with the money in the cash account? It is no longer in the account, it has been spent.
I hope that this makes sense to read, I really can't get my head around it and I've just had a filling at the dentist so finding it hard to focus at the moment.
Transfer it to whichever is the bills account (her personal account) and pay all the expenses that have been paid out of that account, out of that account. I'm assuming the expenses are on but not paid ?
This is the usual case scenario of using your own personal account when you should open a new account and seperate business and personal use and its all about education of the client!
Any monies that she has spent to set up will be capital account stuff, so you would CR Capital account and DR the appropriate expense account/asset account.
The sales would go CR sales DR cash account and any purchases by that money would be DR purch CR cash account. You should not have a balance in the cash account if it has been spent?
Thanks for your answers. I have taken this client on as a one off to set up her accounts and she wants to have a go at doing them herself. I have told her that she needs to set up a business bank account asap to make it a lot more easier for herself and she was doing it as a priority.
That's right, the cash has been spent but because there have been expenses paid by a personal bank account, a credit card, a paypal account and cash, it is impossible to work out which expenses were paid by the cash sales money, so I am unsure which expenses to pay?
Terri
-- Edited by Terri on Tuesday 20th of July 2010 03:28:18 PM
-- Edited by Terri on Tuesday 20th of July 2010 03:36:08 PM
Does she not keep receipts or anything? If you cannot reconcile the payments, then you'd have to post the balance to drawings, if your client cannot come up with the goods!
If you have receipts for the expenses, you can usually tell how they were paid i.e they usually have the last 4 digits of the card used eg credit card/ debit card(bank) paypal etc, any with no card number would be cash. Also they would show on the bank statement/credit card statement. So after you have paid all the cash receipts out any surplus missing cash from the sales post to drawings as Phil says.
I think you should be paying the expenses from the cash account regardless it is her personal bank account... When she pays money to the business to Owners a/c the other side of double entry should be capital a/c, it's not a transfer it is a double entry so you would have let's say owners a/c dr £1000 and capital a/c Cr £1000. Than when she got an expense let's say £100 you pay it from cash a/c , ie dr office expenses £100 and cr cash a/c £100. Than she has sales £200, cr cash a/c £200 and dr purchases £200. From here you have dr £100 balance on cash a/c what you transfer to Owners a/c. If the money is missing form there (phisically) and no purchases,etc than it is drawings. You could probably leave out owners a/c as it is and just use the cash a/c. Money she puts in the business dr cash a/c and cr capital a/c. Sales and purchases to and from cash a/c. Just forget about her personal bank statement as it is if you not going to reconcile it anyway. It has no connection with business. I am just putting VT CAshbook back on my PC. There should be an option somewhere to show ledger accounts, where you are able to see everything in double-entry ledgers, try it might helps to understand it more.
I wouldn't try to desinguish between personal and business payments as such.
I would move all cash received which has been posted into the Cash bank account to Drawings at the end of every period (month?) and all payments for purchases and expenses posted to the Owners account to the capital introduced account and the end of the period. That way it should be less confusing.
I only keep the two internal accounts seperate so there isn't a jumble of debits and credits in one account and empty them each month to have a fresh nil balance to start each month
Hope that makes sense
Bill
-- Edited by Wella on Tuesday 20th of July 2010 04:12:14 PM
For the latest posts, you really should have reciepts of the goods otherwise they are drawings. It does not matter what the payment method was but you must have matching receipts. I suppose for small amounts and only being temporary you can get away with credit card receipts and no purchase receipts but really technically no receipt, no expense as it has been said before. I would not worry if she paid by cash or card or whatever. To open a business account takes half an hour of your life but it can make your life easier. ie you can reconcile your bank account :)
Yes I am fine thank you and congratulations on the baby! I have taken a massive step today and handed in my notice at work (omg). its very scary, but I want to put 100% into building up my business. People probably think I am mad, but I have a supportive husband who is totally behind me and believes I can make it work.
My business is increasing slowly but surely and that is just from my website, so I have 4 weeks to to have a mad purge on advertising and getting myself out there.
I wouldn't try to desinguish between personal and business payments as such.
I would move all cash received which has been posted into the Cash bank account to Drawings at the end of every period (month?) and all payments for purchases and expenses posted to the Owners account to the capital introduced account and the end of the period. That way it should be less confusing.
I only keep the two internal accounts seperate so there isn't a jumble of debits and credits in one account and empty them each month to have a fresh nil balance to start each month
Hope that makes sense
Bill
-- Edited by Wella on Tuesday 20th of July 2010 04:12:14 PM
Thanks Bill. I think that I am going to do that, there are lots of receipts paid by cash but I have no idea how to tie up the ones which were paid by the sales money received. I will have to explain this to the client because I think that she may argue that she hasn't paid herself the sales money, but I guess that's why she should have a business bank account set up and it's not going to make a huge difference to her business really is it? She is still going to know exactly how much she has paid out in expenses and how much she has received in sales.
Yes I am fine thank you and congratulations on the baby! I have taken a massive step today and handed in my notice at work (omg). its very scary, but I want to put 100% into building up my business. People probably think I am mad, but I have a supportive husband who is totally behind me and believes I can make it work.
My business is increasing slowly but surely and that is just from my website, so I have 4 weeks to to have a mad purge on advertising and getting myself out there.
It's very exciting.
Good luck with sorting your client out.
Thank you Denise. Wow, that is a huge, exciting step. I really hope that it pays off. I think that if you want to run a fulltime business, you have to work fulltime on it. I only work a few hours here and there, but with a 4 year old and a 1 year old home with me - it is impossible to put in the hours that I need to grow a fulltime business. I wish you every success and hope those clients roll in for you
I believe everything is cash,Terri. If she is using her own personal money/account even if she actually paid with her personal debit card it is about the same as she takes cash out from her personal a/c, pays it in her business as cash and spends it. cash sales comes in still you pay expenses etc from cash account. If you put everything as drawings are you not going to have difficulties at year end balance sheet,etc?
Sorry don't want to be confusing, hope the above make sense..
-- Edited by attilabenko on Tuesday 20th of July 2010 04:27:54 PM
I believe everything is cash,Terri. If she is using her own personal money/account even if she actually paid with her personal debit card it is about the same as she takes cash out from her personal a/c, pays it in her business as cash and spends it. cash sales comes in still you pay expenses etc from cash account. If you put everything as drawings are you not going to have difficulties at year end balance sheet,etc?
Sorry don't want to be confusing, hope the above make sense..
-- Edited by attilabenko on Tuesday 20th of July 2010 04:27:54 PM
So say for example that the cash sales total was £125 - I would just pay £125 worth of expenses and if was out by a few pounds and pence then put the extra down as drawings. My problem is that she is getting money sales in small amounts and I don't know what exactly the money is going on. She hasn't for example received £50 in cash and then paid a £50 expense bill, so I can't tie up receipts (even cash paid receipts) to sales money received.
I guess this is why experience working in accounts is advisable. Sorry if I sound a bit dumb. Before studying from home I had no previous bookkeeping experience and I have taken a few exams and passed but it doesn't come close to preparing you to provide a bookkeeping service. The learning curve is very steep for me. I have a lot to learn so thank you for bearing with me, your help is much appreciated.
She needs to have a sales book for sure, it can be just a book whereby she notes down on a daily basis what she sells - actually might help if we knew what she does?
You should only claim expenses if you have an invoice/receipt. If you have neither, I would post to Drawings. You also need to allocate the expenses to what they are for - if they are for purchases, then so be it but they may be for stationery or something.
If you have more expenses than sales you couldn't pay the bill and if you put the difference as drawings it wouldn't work, would it? From zero pounds you cannot draw. The difference is what she pays in to the company from her own money, at the end this has to be capital introduced regardless you go with cash a/c or owners a/c or whatever you call it.
You see you have 125 pounds. You want to pay 130 pounds expenses, you are £5 short (your business is £5 short) so you will have to introduce another £5 to your business to be able to cover the expenses. If you have time to play around with VT Cashbook try a few payments,sales etc. and do a balance sheet. You will see if you draw further monies when you actually haven't got any, it is not going to balance. Me personally found it much easier to check everything in ledger view after a few payments to make sure I understand fully the system behind VT Cash.
About those above as Bill said if you post the totals only at the end of period you won't have to introduce new capital twice a day, just because your client bought a box of pencils...
Don't worry everybody needs help sometimes. About the accounts experience, well I have experience in purchase ledger but don't really see the advantage yet. I have experience in SAGE and some other accounting packages but VT took me some time to understand. It is not difficult (especially VT Cashbook) but it is different. Well I found it different.
Yes golden rule above from Phil. It is only purchases if it is for resale! Everything else has to be expenses,etc. I agree with Phil if there is no receipts,etc for something post it as drawings, it's not worth to risk it...
That's why I set up two internal psuedo bank accounts. If one is used only for paying expenses (Owners A/c) then that has to be capital introduced.
The other is for recording the income received as this is in reality paid into the owners bank account (or pocket?) it is always drawn out of the business.
As the drawings cant exceed the income received and the expenses cant exceed the capital introduced, at the end of the year (to keep it simple, assume no other assets or liabilities for the year) then the drawings would cancel out the capital introduced + any profit made, leaving a zero on the balance sheet. If a loss was made, it would increase the liability to the owner (as she funded the loss by spending more than she took as drawings)
I think that made sense?
PS Vt is a Marmite product. When I first used VT Transactions I hated it. Now I have got to understand it a bit better, I wont use anything else, unless it is required
-- Edited by Wella on Tuesday 20th of July 2010 05:48:52 PM
Yes golden rule above from Phil. It is only purchases if it is for resale! Everything else has to be expenses,etc. I agree with Phil if there is no receipts,etc for something post it as drawings, it's not worth to risk it...
My client is a make up artist - are the make-up products that she buys for herself to use on her clients an expense or a cost of sale?
I think that would be the category of cost of manufacturing finished goods from raw materials ;) so cost of sales, i am not sure but I would put it as COGS.# You would deduct this from your sales to get to the amount of gross profit.
-- Edited by attilabenko on Tuesday 20th of July 2010 06:09:08 PM
Would agree it is a cost of sale but I would be suspicious if it wasn't bought in bulk from a wholesaler eg the odd lippy or eye shadow from Boots or Tesco!!!!!
wrt the main question of personal and business through the same bank account. The income should be classed as sales unless can be proven otherwise. As regards expenditure, the receipts should be classed as either cost of sales or expenses and any difference between income and expenditure as drawings.
-- Edited by semsley on Sunday 25th of July 2010 11:46:57 PM
). its very scary, but I want to put 100% into building up my business. People probably think I am mad, but I have a supportive husband who is totally behind me and believes I can make it work.
