Sole Trader UK - Taking money out business
JKCWS
Member Posts: 14
Hi
I'm new to wave and accounting in general. Im a small sole trader based in the UK and having trouble working out what to do when taking money from "The Business"
]I understand that as a sole trader I am the Business, but for the purpose of getting my accounting figures to look correct i am having a little trouble recording when I move money out of the business accounts to put into my personal ones.
What I have done so far is created a journal transaction moving the money from the business account to another one created called personal. I then create another transaction showing that amount as owners drawings.
My profit & loss seems to be recording fine, but when i look at the account balances, it is taking into account the personal one i created. It doesn't give me a true reflection of the money sat in the "Business accounts"
Comments
Please see this post 😊
https://community.waveapps.com/discussion/comment/8119#Comment_8119
The thing is when I look at what's in my accounts overall I see a negative figure because the account I use to pay myself is always having money taken from it.
What I wanted to be able to see is a total amount that the business has available in its accounts for spending, but the personal nal account figure skews this.
I think it's possibly me wanting wave to do something it's not meant to do 😂
What account do you use to take the drawings from? Do you and customers pay into that account?
No I have an account set up for customers to pay into and for expenses etc, then i have another account called personal.
When taking money out I first create a journal transaction moving the money from the main business account to the personal one. I then create a transaction for owners investments / drawing from the personal account for thee amount i have taken.
So you are saying the overview of your business isn't right because you have a personal account t included.
Is the personal account an actual personal bank account where you have personal transactions coming out or is it a 'virtual' account which should have the same amount paid into it as out of it as drawings?
Apologies for asking so much, just trying to understand how things are working
Its OK i appreciate your time in helping. But yes that's exactly it. It's just a virtual account created for owners investment / drawings. It has also been used to show whenI have made payments for things like mileage allowance. This was how some of the wave documentations suggested doing it.
Taking money out:
Debit Owners Investment / drawings, credit bank account
Claiming back when paid personally:
Debit expense (eg vehicle fuel), credit Owners Investment / Drawings
?
If you are doing this, not as I posted above this would essentially duplicate the drawings.
The Owners Investment / Drawings account is essentially what's called your Capital account..
This is the money the business owes back to you.
Anything you pay for out of your own pocket credits the Capital account and the business owes you more money back.
Every time you draw money out you debit the Capital account and the amount the business owes you is reduced.
A capital account will generally always be on you balance sheet as the net amount you have put into the business minus anything you have already taken back out.
Capital accounts should be a credit balance because the business owes it to you.
Hi Shaun
Im sorry sorry i didnt get back to you on this earlier I went away and completely forgot about it!
So first of all for claiming back expenses i.e. mileage allowance what i do is as follows ::
1 - I work out my mileage allowance (for this example £50)
2 - I create a journal transaction debiting the mileage allowance account and crediting owner investment / drawings e.g. for £50
3 - I then create a second transaction withdrawing £50 from the account i set up called personal account .
I think from reading further articles etc. that the third stage in my process is just not required. Would this make more sense? if i take away option 3 this would essentialy be what you are saying?
I also found this article which helps a bit ->
https://support.waveapps.com/hc/en-us/articles/360000099163-Entering-mileage-in-Wave
Hi,
Your steps are correct except you don't include step 3, as you say.
Debiting the expense account records the expense, crediting capital shows it was paid by you personally so there is no need to record any further transactions for it. It's all included in the one debit & credit.
Thanks Shaun, just me over complicating things then .
So to clear the second part up now, if i am to withdraw money from the business' profits, you mention to :
"Debit Owners Investment / drawings, credit bank account"
In my current setup wave has already detected that i have withdrawn money from the business bank account and has created a transaction showing a withdrawal from the business bank account. If i were to just set the category of this to "owners/investments / drawings" would that be sufficient?
If so i think i have just been over complicating things by creating the second personal bank account in wave. I think i have misunderstood some of the wave advise articles, and where they mention personal account i didn't realise that there was a separate "business" in the top right for a personal account instead of the one i created and attached to the business.