What you want is to set up an account called "Director's Loan" (or an equivalent title for a sole trader), recording the liability of the company to the owner.
If the client makes a payment of a business expense on his or her personal account, then he or she has in effect made a loan to the company, so it's a credit to that account. If he or she uses a business debit card to buy something for personal then use he or she has in effect borrowed from the company so it's a debit (reduction of liability of company to owner)
In Sage you are advised to set up the Director's Loan Account as a bank account, so it can record a debit or credit balance overall, although it ought to have a negative balance most of the time. So it comes out as a "negative asset" which feels odd but that's how Sage does it. I don't know about other systems.
-- Edited by chatcat on Thursday 12th of April 2012 02:44:41 PM
I am hoping someone can help with my dilema. I'm sure it has a simple answer.
I am entering payments made by a client from their personal bank account that are 100% business expences. Do i post this payment to a equity account under capital introduced or make another account for it. I use quick books and when my client was passed over to me from their accountant i was advised to set up the capital introduced account to record starting balances. I'm basically not sure if the two different kinds of capital introductions should be in the same account.
All payments made to the personal account are recorded as drawings.
I hope that someone can help me as for some reason the most simple of transactions seems to have got me knickers in a twist.
Thanks, thats a great help, i was going to do something to that effect by creating a bank account as it seemed like the logical way to do it. I am assuming that all drawings will go through this account also ?? This client uses their business account mainly for all their transactions. Thankyou x
"I am assuming that all drawings will go through this account also ??"
Well, they do in our business, but it is quite small and informal. In some circumstances it might be clearer to have separate accounts to distinguish between minor spending and major or formal transfers - up to you, really. So long as the business owner does not let his borrowings from the company build up!
"This client uses their business account mainly for all their transactions"
I can't help thinking that it would make everything clearer and more convenient if he tried to use separate accounts for business and personal matters as far as possible.
Great, thank-you for your help, i new i was on the right track but just needed some direction. And yes seperation of private and business transactions is my ideal situation but this particular client is a 65 year artist who just takes money from where ever she knows it is so i'm always up against a little struggle there as she is pretty stuck in her ways. i'll keep trying though.
