It isnt clear what you are asking. Both business bank account and cash account are assets of the business. Or liability if the bank is overdrawn. In theory you can never have an overdrawn cash account as you can never have negative cash.
If you are introducing funds to your business you should
Dr Bank/Cash Cr Directors Loan/Capital Introduced
If you are withdrawing funds from the business you should
Dr Directors Loan/Drawings Cr Bank/Cash
You will use directors loan if you have a ltd company and drawings/cap intro if you are sole trader/partnership.
I am a sole trader. I wanted to know how to record withdrawing cash from my business bank account to be credited to my cash account - And used for business purposes. A lot of my customers pay in cash so I thought I should be using a 'cash account' to record such transactions.
I only use a custom made excel spreadsheet to calculate my accounts. I have a column in the payments side of my bank account which reads 'To Cash a/c' which is deducted from that months income to balance the account.
So....
If I withdraw cash from my business bank account (My Cashbook) and credit this to my cash account, Do I record this as 'capital introduced' to my cash a/c? As this money is originally from Income into the bank account. If I put it as income surely this would be included in my taxable earnings twice, once in the cashbook and again in the cash account?
I have been told by HMRC to deduct my 'capital introduced' from my overall taxable profits at the end of the year, (as this is what the business owes me back and therefore reducing my taxable profits?)
I am no expert and It has taken me nearly half an hour to type this as I kept getting confused! I know what I am trying to say but explaining it is rather difficult!! Any suggestions, help, tips, or walls to bang my head on welcome!!
I think it's a lot simpler than you think. All you are doing is transferring money from your business bank account to your cash account. It isn't capital introduced as it's money that's already in the business in your bank account. If you were transferring money from your personal bank account to your Cash account, then it would be Capital introduced.
The only entries that you need in your books are Credit bank account with the amount transferred and Debit Cash account (as stated by BudgetB). It's not strictly income, as you are just transferring money between accounts. Your Cash account is an asset account and increases in asset accounts are always debits.
Hope this helps
Pauline
-- Edited by Stardoe on Wednesday 9th of March 2011 09:05:27 PM
Only reason I ask is that it will be easier to understand what you do and how you your books in relation to your trade and to offer advice on whether you are doing them the best way.
With regards to the HMRC....LOL!!!!
In my opinion, you should only use a cash account if you aim to retain any cash received from customers for use as a petty cash float with which you pay cash for small expenses such as stamps for example. If you receive cash from customer and then bank all of it, you don't need a cash account.
I would be interested to review your spreadsheet template to see how you do it.
