How do I properly record my drawings and personal payments?
AmyJay
Member Posts: 2
Ok, so I'm slowly working my way through how to do things here but even with extensive research I'm having a difficult time wrapping my head around the how I record my drawings and personal payments.
When we started the business most of the payments (phone bill, etc) were set up with my personal bank account, and have not all been changed over to the business account yet.
I don't understand exactly how to record the payments that were made through my personal account as business expenses. I've been "paying" myself back by drawing money from the business account as needed but the amounts don't match up as I've also been taking general drawings from the business account at the same time.
I don't have my personal bank account linked to Wave, however I have imported the transactions via csv.
For a simple example let's say I've set up equity accounts "AmyJay's Contributions" and "AmyJay's Drawings"
So far I think I should be entering a transactions using
Account: "AmyJay's Contributions"
Deposit/Withdrawal: "Withdrawal"
Category: "Expenses: Phone Bill"
Account: "AmyJay's Drawings"
Deposit/Withdrawal: "Deposit"
Category: "Transfer from Business Bank Account"
Is this correct?
However I think I made a mistake as I've also set up an Asset account "AmyJay's Personal Bank Account" when I imported the csv from my personal bank acct. This means I have the following:
£100 paid out from business account
£100 paid in to personal account
So they cancel each other out and it looks like the £100 is still there as an asset when it's equity/drawing.
I've tried using a transfer which gives me:
£100 paid out from business account
£100 created transfer out from business account
£100 paid in to personal account
So it's now £100 down in assets but I don't know that that makes sense either.
I feel like the personal account shouldn't be there (as it's currently showing that the business has money it doesn't have) but I'm not sure if the Equity accounts are the right thing to show what has been paid and what hasn't? I think I've been working at this too long as everything has now stopped making any sense!
I'm a sole trader/partnership, not ltd company if that helps.
Thanks in advance for your help!
Comments
Hey @AmyJay! When you have an expense that you have made using your personal account, you can categorize the transaction as "Owners Investment/Drawing". This will ensure that the transaction is categorized appropriately, and will not reflect on the business' reporting, since the funds did not come from the business bank account.
In terms of tracking your personal account, I would advise against connecting your personal account in Wave or creating it in your chart of accounts because your Wave account should be specifically for your business interactions and so the personal transactions in your bank account hold no relevance to your business interactions.
yes, but how do i record that individual transaction which I made for my business?
@Hersh,
If you paid for business expenses outside of the business account then you will need to create a journal entry to reflect the payment of business expenses by the owner. So let's say you bought some office supplies for $250. You would create a journal entry under Accounting/Transactions/ Top right More/ Journal Entry. Record:
Debit Office Supplies 250
Credit Owners Draw/Contribution 250
@mikeg Thank you for your response. But I imagine that during the audit they would want to see proof of the transaction, wouldn't they? Like a bank record that shows that single transaction?
I am using an e-wallet and I have a picture of the transaction I made, my question is, is it a must to upload it as well so they can view it. And if yes, where do I upload it? I thought about uploading it into receipts but that sounds wrong.
and for vendors invoices, shall I upload them as receipts when I pay them from my personal account? where do I have the proof that I paid?
Sorry for bombarding you with questions.
@Hersh,
You should always keep a receipt for each transaction whether you store it in Wave or some other place, it should be readily available in the event it is needed. I would store them where it is easiest for you to access and organize. There are a multitude of ways of storing and every business goes about it differently. For your vendor invoice example above, you could write "paid check 101 2/13/20" on the invoice and upload to Wave or some other storage site.
I have a somewhat different twist on this, but hopefully it is easy to clarify.
I have a very simple business model:
My current software (iBank) makes this easy as I just enter my invoices, tick them as paid when they have been paid, add in my expenses under the appropriate categories, and then I subtract expenses from total income (plus tax withholding each month) and what's left are my drawings/salary for the month.
The thing is, I'm unsure how I should enter my drawings and have them reflect correctly in reports (and thus how my tax is configured). I've looked at this from so many angles now I'm completely confused. Can anyone advise how I should best handle this?
Many thanks,
Bow
Hey @Bowjest , thanks for this question! If you're wondering specifically how to categorize your remaining funds as drawings for your salary, you'd do so by creating an expense transaction from the bank account for the amount of the draw, and categorize it as 'Owner's Investment/Drawings'. This will make it appear as a personal draw and not count as a business expense!
Hi @CallieP ,
That's great. Seems to work fine.
I really appreciate your help.
Bow
If I categorize personal expenses as Owners Draw, how do I decrease the Owners Equity equity account using Personal Expense? Should the Owners Equity Account have a bank account to go with it other than the Business Expense Checking?
Hey there @HonokaaBob
To categorize transactions as personal spending from your business, or personal investment into your business, you can choose "Personal Expense or Withdrawal" or "Deposit from Personal" when you’re categorizing. You can learn more about how this works here: https://support.waveapps.com/hc/en-us/articles/360020168332-An-easier-way-to-manage-personal-transactions