Although I do bookkeeping in work - it is computerised. I decided therefore to do my ICB Manual Bookkeeping I & II exams and passed a while ago now. Recently though my partner roped me in to do his books when he went self employed as an artist. His workload is very small and seasonal. I though ok it will keep my hand in.
I set up in excel on my laptop - general ledger etc. when he went self employed (and roped me in)he had a minimal amount in the bank so i started my ledger with - CAPITAL - and BANK - as thats all there was. WAS THIS RIGHT.
Last year I did all his income Bank and Cash. I put through expenses for stationery etc and travel expenses like train fares. I put through Class 2 NICS payments. I also put through his drawings. I reconciled his bank statements. I balanced off at year end. I did a profit and loss (it did look funny though as hardly anything on it) with his sales less exp. I also did a balance sheet (with hardly anything on it also). He lives off the money he makes so there is not much at the end!
On his balance sheet i had just his minimal Bank Figure (as he used up all his cash - this i put through as drawings) then I had - CAPITAL - PROFIT - LESS DRAWINGS and NICS. This did balance. Is this right?
Although I can see from the Balance Sheet exactly what money he has - which is very little - less than what he started out with - a minimal bank balance. When i look at the ledger it does not look right - i carried forward his CAPITAL BALANCE - BANK BALANCE - DRAWINGS BALANCE - PROFIT AND LOSS BALANCE. Is this right? They do balance but I am sure Ive missed a step somewhere. Do i set off drawings against p&l or something ???
The way I have done it and as it stands when i look at the ledger I know he only has the money he has in the Bank. He does not have the money that is in CAPITAL any more. There is a balance on Drawings and a balance on P&L. Do these figures just accumulate year after year?
Someone please help.
Also can he claim for petrol and car insurance - he used his car for his work and for social.
on the car front rather than going down the apportioning route you may be better charging 45p for the first 10,000 miles of business mileage and 25p per mile thereafter. A log will need to be kept showing every business mile travelled but that would also be the case using the proportional method.
the 45p/25p per mile is compensation for using one's own vehicle so is tax free.
Sounds as though you've got yourself a bit confussed with the books. The Income statement (P&L) is specific to the period in question with the after tax figure at the bottom (if anything) being carried accross to retained earnings in the statement of financial position (balance sheet). Do not recycle this figure into the following years P&L or you will end up doubling your profits (and tax liability).
Every year the Income statement starts afresh but the balance sheet accumulates.... That's an incredible simlification of the process but should set the framework.
As for everything else I think that you need to take a step back and ensure that you have the right items going to P&L (current period revenue, current period expenses, current year tax, Adjustments etc.) and balance sheet (Assets (current and non current), liabilities (current and non current), equity, etc).
If you feel that you are out of your depth with this it might be worth investing perhaps £50 for a couple of hours of the time of a good local bookkeeper to take you through the basics. You've done the ICB level's I and II so it's not as though you don't understand the general concepts but it might be better for someone to talk you through what goes where as you seem to have ventured a little into ICB level III territory which it doesn't sound as though you were quite ready for.
If you can afford the expense of a short training session then post on here where in the country you are situated and fingers crossed one of the regulars will be available to help out a little with getting you started.
In the long run you will find that investing in a bit of time from a practicing bookkeeper or accountant will work out cheaper than trying to work through this alone.
kind regards,
Shaun.
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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.
yep - i'm confused. It has been a while since i passed. When balancing off in the ledger at the end of the tax year. I tfrd my sales to the profit and loss - i tfrd all expenses to profit and loss. Which gave me a balance - as you say retained profit. - what is the next entry from here - does it go to the capital a/c with drawings and nics.
I'll have a go at clarifying the basics that you seem to be unsure of.
A) At the beiginning of the year
Opening Capital = Bank + Cash in Hand (These affect the balance sheet)
B) During the year
Profit = Sales - Direct Costs - Other expenses. (These make up the P&L account)
C) At the end of the year
Capital + Profit - Drawings (Including the NI which is a drawing) = increased/ decreased Capital account = Bank and/or Cash in Hand (On the balance sheet)
As Shaun says once the sales, costs and expenses are moved to the P&L account, they are left empty for the next new year. The P&L account is moved into the Capital accounts and left empty for the next new year. This cycle repeats every year.
Likewise, this is simplified. There are a number of adjustments that may need to be made but if you have a very basic income and payments type of business it is a starting point
HTH
Bill
-- Edited by Wella on Tuesday 10th of May 2011 02:32:09 PM
Thanks Bill - What happens with the Drawings and Nics on the ledger. What happens with the balance - does this too go to the capital account. Since posting my initial thread my brain has been in overgear - i figured that the balance from p&l and drawings and nics go to the capital a/c and when i balanced this - this then represented the figure in the bank. is this right.
Yes the Drawings, are also transfered to the Capital account, so they will reduce it. It is not necessary to show the NI contribution seperately, it is a drawing like any other.
To keep it simple, I am assuming that no assets were aquired, and no loans were taken out for the business. In this scenario, all the money is kept in the bank, which in theory should be equal to the Capital left in the business.
