Help with basic book-keeping

iron_bored

Hi all,

Was wondering if somebody might be able to help me out with a (very!) basic double-entry question. My OH has started some self-employed work as a sports masseuse. She needs to buy massage oil in relatively small quantities in order to do this. Since the oil is not intended for re-sale I presume it is not classed as Inventory. So when she buys the oil, you obviously CR the Cash account, but I'm not sure which account to DR?

I don't think it would be Purchases since the oil is not Inventory. I'm thinking it needs to be an expense account, but which one? Or do I make a new expense account eg Oil Expense?

Sorry to be asking such a basic question - it is a very small scale venture so looking to keep all financial records ourselves until it is a bit bigger and can afford to get an accountant on board.

Thanks in advance

Pennywise

I'd put it to purchases. Whilst it may not be sold, it is used-up during the sales process, so it's a direct cost:consumables, which for a small business is the same as purchases - it will end up in the same box on the tax return - box 10 which is "Cost of goods bought for resale or goods used"

For smaller businesses, you're better working backwards from the tax return itself to design your chart of accounts. The tax return requires relatively little detail - about 10 boxes of expense types, so you've no real need to go into any more detail than that.

http://www.hmrc.gov.uk/forms/sa103s.pdf

I think sometimes it's too easy to get carried away and make things more complicated than they need to be.

PlutoinCapricorn

Do you really need to go to those lengths?

I have a spreadsheet in three sections: income, running costs and sundry expenses; I supply research and consultancy services so there is no buying and selling, so no stock, inventory, depreciation etc. needed. Paper and envelopes are a sundry expense, as are print cartridges. Some I use at home, some I take with me to the clients' offices. It seems to me that massage oil is similar.

A sole trader IS the business: a limited company is a different matter.

Strapped

iron_bored wrote: »

Hi all,

Was wondering if somebody might be able to help me out with a (very!) basic double-entry question. My OH has started some self-employed work as a sports masseuse. She needs to buy massage oil in relatively small quantities in order to do this. Since the oil is not intended for re-sale I presume it is not classed as Inventory. So when she buys the oil, you obviously CR the Cash account, but I'm not sure which account to DR?

I don't think it would be Purchases since the oil is not Inventory. I'm thinking it needs to be an expense account, but which one? Or do I make a new expense account eg Oil Expense?

Sorry to be asking such a basic question - it is a very small scale venture so looking to keep all financial records ourselves until it is a bit bigger and can afford to get an accountant on board.

Thanks in advance

As above, just expense it. If there is a "management information" advantage to accounting for it separately then give it its own line as you say ("Oil expense") but if not then "Sundries" covers most everything ;-) HTH.

PlutoinCapricorn

Pennywise said it very well: start by looking at the requirements for the self-assessment tax return. If the turnover is under £70,000 (this figures increases from time to time) then HMRC just want three totals: self employment income; self employment legitimate expenses and self employment profit. HMRC don't want to know the details at this point - or often at all.

You do need to keep breakdowns and evidence of expenditure and business use just in case there is a query or investigation, and also for your own interest.