Sole trader, please help

Danni19

When you take money from the business, this is drawings, when you pay for business things yourself, or put money into a business bank account, this is capital introduced.

The bookkeeping entry for these are;

dr expense (say, motor expenses) £100
dr VAT (if applicable) £17.50
cr capital introduced £117.50

when you pay for business expenses privately,

and

dr drawings £117.50
cr bank £117.50

when you take the money out of the business to pay yourself back.

As you can see the capital introduced and the drawings cancel each other out (although you should really show them seperately).

Make sure you have a receipt for any costs you are including as business expenses, especially if reclaiming vat on them.

Debt_Free_Chick

Danni19 wrote:

As you can see the capital introduced and the drawings cancel each other out (although you should really show them seperately).

And both go on the Balance Sheet, not the P&L so the taxable profits for a small trader are unaffected.

Perhaps I'm being lazy by just netting it off Drawings, on the basis that the taxman is not interested in my balance sheet

But thanks for the clarification :beer:

nemofish

Thanks . I think I know what to do now. I will be back if I need more help. Which I think I am going to need.

Debt_Free_Chick

Danni19 wrote:

dr drawings £117.50
cr bank £117.50

when you take the money out of the business to pay yourself back.

Do you mean
dr bank
cr drawings

?

As the expenditure is moving FROM (Dr) the bank account TO (Cr) the owner i.e. money is being taken from the business