Basic advice: Sage accounts

danwednesday

Hi,

I know this isn't a 'tax cutting' question, but I know that there are lots of small-business directors and accountants here who might be able to help me out with a couple of basic newby questions.

1. I run Sage Instant Accounts, version 12. When I set up my company a few months ago I transferred £xxx to it so I could pay some set up bills. How do I deal with this in Sage? Do I need to set up a Director's account and then just do a transfer from that account to the business current account? If so, the director's account will then be overdrawn - presumably I then pay back the £xxx to my bank account and mark that in sage as a transfer from company back to director? Is this the best way to do it?

2. So far, I've been drawing out a few hundred pounds from the company in order to live on (pay my personal rent, bills etc). I'm looking to declare some of this as income and the rest as dividends at the end of my business year. How should this be entered in Sage?

Thanks for any help folks, much appreciated...

Pennywise

Create a new bank account and call it "directors loan account". Then you can post transfers between it and the normal bank account very easily, and can also use it for payments that are made in cash out of your pocket.

Re your drawings, up to now you've been taking repayments of your loan, so the payments are transfers from the main bank account to your directors loan account.

Be very careful with dividends - you need a directors meeting (and minutes) to confirm that there were sufficient post tax profits to cover the dividend, and also dividend vouchers. It is not something you can backdate at the year end, you have to keep up with the formalities every time you decide to pay a dividend. Of course, you don't have to "pay" a dividend you vote - you can vote it and pay it to the directors loan account - i.e. a bank payment out of the directors loan account to the dividends account - then you can draw against it as required.

danwednesday

Thanks Pennywise. Okay, I'm starting to piece this together, just a couple more (probably silly) questions, then I think I'll be fairly confident in what I'm doing...

1. So, after asking around, it seems as if I can carry on doing what I'm doing so long as each time I transfer money from my business account to my personal account I log it in Sage as a payment to a Director's account - which my (unhelpful) accountant can then apparently deal with before my year end - assigning the amounts to either salary or dividend. Question is, should this Director's account match a real-life bank account penny-for-penny, as the company account does/should?

At the moment I just have one personal current account, and one company current account. I don't have a 'directors' bank account. Does this create a problem?


2. You mention a 'dividends account'. Where does this come in? Should this be created as a third account in Sage? Currently I only have the company current account and shortly a director's account.


Thanks for your help, it's much appreciated!

jimmo

Sorry if I’m butting in but one of us has got the basics wrong. Naturally, I think it is you
If you put £xxx into the company bank account then your director‘s account with the company should be in credit. (You are a creditor of the company, or, the company owes you £xxx.) The company‘s bank account with the bank will be in credit because there is cash in it. (The company is a creditor of the bank.) However the bank’s account with the company, (or on the company’s books) will be in debit. (The bank owes the company £xxx)
I am not familiar with Sage 12 but it will definitely be based on standard bookkeeping.
If we now go back to the original transaction that you paid £xxx into the business bank account.
The company now has you (the director’s account) as a creditor of £xxx.
The company now the bank as a debtor of £xxx.
Its net value is nil.
Get that right and you’ve got a good chance but you need to constantly keep in mind that the company’s bank account on its own books is the exact opposite of its bank account on the bank’s books.

danwednesday

Thanks Jimmo,

I'm pretty sure I'm not getting this wrong - I understand now how to issue loans and pay back loans to/from the company (albeit the accounting terminology of debits and credits is still new and slightly couter-intuitive). That's fine and no longer an issue.

My only remaining issues were questions 1 and 2 in my previous post. I've spoken to someone regarding point 1 and it seems my directors account in Sage doesn't need to exactly match my personal current account, so I think this is sorted now. Regarding point 2, I'm pretty sure I don't need three accounts set up in Sage, just a business current account and a director's account. By 'dividends account' I'm pretty sure pennywise meant that to be the same as the directors account i.e. not two different accounts in sage.

Thanks for your help y'all.

Elaine_Wilson

Hope this doesn't confuse you as I haven't used Sage Instant but I have used various Sage programs before.

From what has been said you are declaring a dividend but not drawing it out in one lump. The dividend is to cover the various drawings made and, presumably, charged to the directors loan account.

Most Sage programs I have seen use codes from 0000 to 3999 as balance sheet items. The profit and loss account starts at 4000 with the first income account (sales or fees). Then follow the various expenses accounts - first direct expenses and then overheads. The net value of these accounts gives you your profit.

Finally, there are appropriations of profit. These include dividends paid and corporation tax. It is this dividends paid account that I think Pennywise was referring to.

You need to debit this dividend account with the amount of the dividend declared and credit it to the director's loan account (somewhere in the 2,000s or 3,000). This would generally be done with a journal entry.

Does any of this make sense?

jimmo

Sorry to persist but what is bothering me is this part of your first post “set up a Director's account and then just do a transfer from that account to the business current account? If so, the director's account will then be overdrawn - presumably “
I really can‘t get my head around the concept that the director‘s account can become overdrawn in your circumstances.
Does it make more sense if I suggest that your accounts should start with a clean sheet? The company has no assets and no liabilities. Then, the first entry should be that you, the director, paid in £xxx to the company’s bank account? That is a credit to the director’s account and a debit to the company’s bank account.
.At the end of transaction 1 the company’s balance sheet will show the director as a creditor of £xxx and the bank as a debtor of £xxx.
Sorry, but I still think you have started out on the wrong foot somehow but I readily admit that its quite a number of years since I used bookkeeping on a regular basis.
Turning now to your original question 2 the money you have been drawing from the company in order to live on is firstly a credit to the business bank account. The corresponding debit goes to your directors account, director‘s loan account or, perhaps the salaries and wages account.
If your drawings are wages does the company have to operate PAYE and deduct PAYE and NIC?
If they are not wages they are either refunds of money you have loaned to the company or personal borrowings from the company. Your position will be that you owe the company the money you have borrowed until such time that it awards you remuneration or dividends.
As a director of the company you could become chargeable to tax on a beneficial loan.
To be honest my personal biggest fear is that I have got the principles of bookkeeping wrong and I am wasting my and your time. However I really think that I still have the basics and you have got it wrong.
However, as a side issue, you referred in post #3 to your unhelpful accountant. If he is unhelpful what on earth are you paying him for? He is the shopkeeper and you are the customer.
If he is being unhelpful then you really need to look for an accountant who you can get on with.

danwednesday

Thanks folks.

Jimmo, I understand that in my original post I may have got the accounting terminology wrong. I have no experience in book-keeping, and it is something I'm working hard to address. I understand clearly the principle of moving money between accounts though, which is essentially what's happening - even if what I term 'credit', 'debit' and 'overdrawn' isn't the correct book-keeping terminology and is confusing to more trained people. To re-itterate, I'm sure I understand the principle of what's going on, it's just my terminology which may not be right, as book-keeping debits and credits seem counter-intuitive to someone with zero training in book keeping. I'm trying to learn, and have enrolled on a basic book-keeping course, which sadly doesn't start until September.

I realise also that I can look for a new accountant - I realise that I'm not stuck with the same accountant forever and that I can decide to find a new one. However, not knowing anyone in the area who can recommend an accountant I have to address this randomly. I did this to begin with, by going to see three random accountants in my local area. The guy I have now, I thought, was the best, but he he's turning out to be very unhelpful. I'm too busy right now to go through the process again, and felt it more productive to try to learn some of the basics myself - from internet sites and forums like this - so that when I do have the time to search for a new accountant all over again, I have some basic idea of what they're talking about and don't repeat my mistake of picking someone who can't seem to explain the most fundamentally basic principles of how to set up some simple, small-company accounts.


Elaine, thanks very much - can I run through an example to try to make sure I understand this:

Say for example, I started my company from scratch on 1st January 2007 and I draw around £300 out of my business bank account every week to live on. (I know it shouldn't be drawn weekly as it's more admin, but this is just an example to help me understand.) I'm aiming to pay myself around £5000 in the year as a salary (the exact figure I'm not sure - it's basically the smallest amount possible to still get the pensions benefits) and the rest as dividends.

That salary figure equates to around £400 per month in wages. My total earnings from the company will therefore, hypothetically, be £20,600 (£5,000 salary, £15,600 dividends).

So, in Sage, I would enter the first withdrawal as a payment of £300 from the company to the director - with the nominal code for salary; then the second payment as two entries of £100 with nominal code for salary, and £200 with nominal code for dividend; then in the third payment as £300 with nominal code for dividend? So I'm marking the wage element and the dividend element with their appropriate nominal codes, yet transferring the money from my single business bank account in sage to my single directors account in sage?

Thanks again!

longforgotten

Just out of interest....

Have you been regularly reconciling your bank balance on Sage ?

danwednesday

No, because although I have the invoicing side of it under control, I've not got to grips with the outgoings side of it. I know that there's plenty more income than outgoings, so there shouldn't be a problem - I just need to finally get the outgoings half of my account logs sorted, then I should be able to run profit and loss accounts and reconciliations etc.

longforgotten

Would suggest that September is too long to wait for your book-keeping course, especially if you are VAT registered.

Try and find someone who knows how to use Sage ( not someone who says they know and actually doesn't ).

If yours is just a small business I would think a mornings, or maybe a days, advice would put you right.

Also I think version12 comes with a book showing you how to include transactions. If you had a good nose through that it may help.. makes good bedtime reading I don't think !