I run my own Ghost Hunting Events company and also sell on eBay. Whilst studying Bookkeeping I thought it a good idea to do my own accounts and it helps with both study and getting real life experiance.
i have just run end of year in Sage and I have a massive loss reported for the year. I tracked this back to the first month where I entered everything.
myself and business partner added £2k each as capital, however some of this was in the form of asset, and all the asset introduced as part of capital has hit the P&L.
I now think I may have entered this wrong as a journal entry DR office Equipment and CR Capital, which I now think is wrong.
Am I right in thinking I should of done Opening Balances on them instead for example:
Despite having quite a few accounting qualifications I usually avoid answering technical questions in case I say something daft. Anyway, I'm going to have to do it sometime, so here goes.
When you introduced the asset to the business, the postings should have been:
CR Capital 2000
DR Assets 500
DR Bank 1500
These are all balance sheet entries, nothing should have been posted to the expense accounts in the P&L.
The asset would then be charged out to the P&L over a period of years. This is depreciation. For office equipment, a period of 3 to 5 years is probably appropriate.
The entries would be:
CR Accumulated Depreciation 100 (in the Balance Sheet - if depreciating over 5 years)
Doesnt matter if you did it as opening balance or journals. There is no effect on the P&L of your adjustments.
It may be that your chart of account is wrongly set up on SAGE and your office equipment account is getting picked up on the P&L account? See nominal/COA. If it is just change the office equipment account to the appear in the balance sheet under Fixed Assets.
As David says your office equipment should be capitalised and depreciated over the period of its use so as to spread the charge to P&L over the assets useful life.
I have been back and looked at how I set it up and I used opening balances.
I then checked through the P&L found it was correct, just bought a lot of office products as had just started out. I think it is out slightly as I didn't enter a closing stock for the period but that would even out over the two periods.
It's not the correct way to do it but as its my own company accounts it won't matter the final figure for the year will be right.
