Start up costs and paying myself back: What's the proper accounting practice?
Camilla Barker
Member Posts: 1
Hello fellow Wave users!
IÛªm new to accounting, so IÛªm sorry if this is a real Û÷noobÛª question. IÛªd like to know how to pay myself back for things I have paid out of my personal account at the start of my business. IÛªve made up some basic figures to illustrate the scenario below:
I set up a new business (sole proprietorship) at the start of November. LetÛªs say I paid £100 for set up expenses like website hosting and whatever else, and currently those transactions are categorised as coming from Û÷Owner Investment / DrawingsÛª in my Expenses as I thought that sounded right from the available options on the drop down menu (was I wrong here?). My starting balance was zero; I didn't invest a certain amount into the business at the beginning from which I drew costs; I just paid for the things out of my own personal account. IÛªm a consultant, and so far IÛªve had one client who is paying, letÛªs say, £1000, which has not yet been received but will go in as Û÷Consulting IncomeÛª in my Income account. I paid the expenses out of my personal current account (before I had a business bank account), and the income will come in through my new business account. That means that when the amount is paid, my balance on my Wave Dashboard will be £1000, but I want it to be £900 to reflect the fact that expenses have been paid. Is it OK - from an accounting perspective - if I pay £100 from my business account to my personal account to address this? How do I record that? As owner drawings? Does that affect the business equity?
Thanks for any advice youÛªre able to offer!
Best
C.
Comments
Hey Camilla,
Welcome to Wave and I wish you all the best for your business.
The first step you recorded is absolutely correct - Expenses coming out from yourOwner Investment / Drawings.
The next step is much easier:
Create an income transaction and split the transaction:
1. Record GBP 900/- as Consulting Income into your Business Checking Account
2. Record GBP 100/- as Consulting Income into yourOwner Investment / Drawings
This way you will be able to successfully record income, have yourOwner Investment / Drawings account balanced,and have your Business Checking account reflecting GBP 900.
Regards
Abbas Ali.
@Abbas Ali: For Step 1, this is not supported by Bills, e.g. you can only pay using Bank/Cash account, not an equity account.
So I don't think that's the correct way. If it's correct then it should be supported by Wave, right?
Although for Receipts, I can select "Owner Investments / Drawings", but not Owner's Equity.
Which makes me curious, what is the difference between "Owner Investments / Drawings" vs "Owner's Equity", considering that both are equity accounts?
@Hendy my reply to Camilla was helping her to achieve the result using the Transactions page in the old version of Wave. You seem to be using the new version of Wave, just want to bring to your attention many customers are still being migrated to the new version. Here's what is new in the Transaction page.
You are absolutely correct, the current version at the moment does not allow a business owner to pay bills using the Owners Investment / Drawings account. But that does not mean it is not a correct way. At the moment the feature is in planning but it's not there now.
It is recommended to have a seperate bank account for business, and initially most business owners make initial investments in the business through their pocket. If you are doing something similar to Camilla, here is how you do it:
1. Create an income transaction in Bank/Cash account and categorize it as Owners Investment / Drawings.
2. Pay the bills using Bank/Cash account.
3. Record income from customer in Bank/Cash account.
4. Create an expense transaction and categorize it as Owners Investment / Drawings, to offset the initial investment.
Most business owners like to track their drawings in a separate equity account. However both Owners Equity and Owners Investment/Drawings are provided and can be used on customers preference.