Hi, I am having a bit of difficulty figuring out how to put the drawings through the system. Is there a nominal code to do this? Some of the drawings are for fuel, food, clothes - general living really. Do I have to catagrorise these or put them through as general drawings?
Hope someone can help, I appear to have hit a brick wall!!
The general double-entry for the owner of a business having the business pay for their personal expenses is
Debit Drawings Credit Relevant expense account
This reduces the value the business had already paid for expenses because they turned out not to be used by the business after all. This assumes that the expense was already bought by the business, so tends to apply to things like taking stationary home or such like.
However, if all the person is doing is getting the business to pay for was is essentially bills of the owner for stuff they are buying for personal use, which sounds more like your situation, then:
Debit Drawings Credit Bank account / Petty cash / whatever
and the reason for the drawings is irrelevant for the purposes of the accounts.
On the Balance Sheet, drawings is included in the Capital section, which in Sage is the range 3000-3999. Look to see if there's a code already set up in there.
Thanks very much for your help, there is no code set up for drawings, if i set one up in the Capital section, will it automatically allocate it to drawings and show this in the profit and loss?
If you set up a nominal code in the Capital section for drawings, you can then post transactions as bank payments to this nominal code. (i.e. Dr drawings and Cr bank). Drawings do not appear in the Profit and Loss, but are a Balance Sheet item. Usually drawings are deducted from Capital at year end.
It will say Drawings for that account's balance, in the Capital section.
The fundamental accounting equation is Assets - Liabilities = Capital, I wouldn't recommend (even if it was possible), inferring that that has somehow become Assets - Liabilities = Drawings.
Just one more thing, when I am postings transactions as bank payments to 3001 (drawings nominal code) do I need to put down the details of where from and what for or is that just for my reference?
You have to say where the drawings come from in order to enter the other side of the double-entry, i.e. bank account, petty cash, some expense account, whatever, as I explained at the top of this topic. But in my opinion (others may wish to overrule), what the owner does with his drawings is of no concern of the accounts of the business.
You have to say where the drawings come from in order to enter the other side of the double-entry, i.e. bank account, petty cash, some expense account, whatever, as I explained at the top of this topic. But in my opinion (others may wish to overrule), what the owner does with his drawings is of no concern of the accounts of the business.
I agree, I just put them as drawings and leave it at that, in my opinion all the accountant/HMRC need to know is that money has gone from the business and been accounted for as a drawing rather than a business expense.
Hi again - I know I probably sound really stupid, but I still can't get my head round this! I know I have to Debit Drawings and Credit Bank account, but I just can't seem to figure out how to debit the drawings account. I started to add all the various shops etc as suppliers, then thought, maybe thats not right?! Do I enter every transaction or can I combine them as 1 figure? Should I set up an account for Drawings in the Bank section (i have set up a nominal code of 3001).
Sorry for all the questions, I am very new to this and am doing my sisters books for her (not a paying client!) I hope someone is able to help me - I am starting to tear my hair out - ARGGG!!
What they have done really is taken money out of the business account (1200) and paid for something that isn't anything to do with the business, so credit bank account and debit drawings for anything unrelated to business. They may balk at some of the stuff you put as drawings and want it to go through the business as an expense, but a drawing is drawing and you are responsible for that.
Yeah, I'm on sage. I know how to do the bank payment to the nominal code for drawings, but then how do I debit the drawings account??? I know this makes me sound stupid, but can't seem to figure it!
Yeah, I'm on sage. I know how to do the bank payment to the nominal code for drawings, but then how do I debit the drawings account??? I know this makes me sound stupid, but can't seem to figure it!
Sian
You are doing when you make a bank payment. It automatically credits the bank and debits whichever nominal you put in.
Oh my god, I can't believe I have wasted so much time on something so so simple - how daft am I!?!
Thank you Steve, you have rescued my sanity!!
Just one more thing, I shouldn't put mortgage payments through the business account should I? She does work from home. She has actually been paying them through the business account as this is her only income, not too sure what to do with them.......
If only No if it her house then she shouldn't be paying for her mortgage through the business as an expense, someone with way more knowledge would be able to say if she can take a portion of the mortgae as an expense, but I would imagine it is more likely to be a portion of amenities dependant on relative area of what she classes as an office.
Ha ha, I am a full time Mum so I have plenty more sanity to lose!! Thanks so much for your help! I will look into the portion of amenities, she only uses her kitchen as she decorates cakes for a living!
Just one more thing, I shouldn't put mortgage payments through the business account should I? She does work from home. She has actually been paying them through the business account as this is her only income, not too sure what to do with them.......
She should certainly be able to claim a proportion of utilities and other expenses if she works solely from home. You will have to work out an estimate of how much to claim. Take a look at this link...explains it in non-jargon like terms!
Also many sole traders use their personal bank accounts as their business accounts as well.....if possible it is better to keep them separate. I have a separate bank account to my personal account and the money I earn goes into this, but I then transfer a portion out to my personal account, leaving behind enough to cover expenses each month. Makes it easier to keep track of.
On the question of the mortgage payments, you can claim a portion of the interest on the mortgage but not the capital payments.
No if it her house then she shouldn't be paying for her mortgage through the business as an expense, someone with way more knowledge would be able to say if she can take a portion of the mortgae as an expense, but I would imagine it is more likely to be a portion of amenities dependant on relative area of what she classes as an office.
