It's been a quiet old time here the last few days, everyone still alive?
Quick question on the back of a topic on another forum...a sole trader starts a business with £6000. 6 months in their business is doing well and they decide to take £1000 of this back. How would you process it:
DR Drawings or DR Capital?
Just wondering if there is one with is technically more 'right' than the other. What are the views?
Yep, bobbed in a couple of times over the w/e but very little activity.
The key would be if he had introduced more than he ended up needing to introduce. In which case, it would be more true to say Cash Introduced £5000. The reason for the £1000 was not by way of a bonus, but because he wanted a new kitchen and the business was flush.
If someone was continually paying for sundry expenses because of cashflow difficulty then all of these should be entered in Cash Introduced, which then might become a significant figure. Entering them as negative drawings would hide the facts from a casual observer.
I see Capital as an account which lists all value put into the sole trader business, and Drawings as an account which lists all value taken out. Thus I'd never Dr Capital unless there was no Drawings account being used.
Also, the reason for taking the money out is the owner's concern, not the business's, and so shouldn't be relevant to the business's accounts.
