If you’re new to running your own business, chances are you will start out as a sole trader. A sole trader is somebody who runs a business under their own name, for example Mike Jones “trading as” ABC Window Cleaners.
Many new sole traders find it hard to tell personal and business finances apart, and to know what to enter in their accounting software. The rule is simple: you only record the transactions that relate to your business. Personal transactions don’t belong in your QuickFile account.
This guide covers keeping business and personal money apart, using the Proprietor Drawings Account for money that moves between you and your business, choosing a category for your expenses, and recording income from payment providers and tills.
Prefer to watch?
Prefer a video walkthrough? Watch our Sole Trader Bookkeeping Basics | QuickFile Support Guide tutorial on the QuickFile Help Guides YouTube channel.
How do I keep business and personal transactions apart?
Many sole traders use one bank account for both business and personal money. When you import a statement from that account, you’ll see grocery bills, your mortgage and household bills alongside the odd payment from a client and business costs such as stationery or advertising.
If you run your business from a personal account, import your statement and delete the personal entries, so only the business items are left. You can remove them from the CSV file before you upload it, or afterwards from the bank statement in QuickFile (tick the entries and click Delete Selected). Leave in any payments that are part business and part personal (for example, if you use a room in your home as an office).
If you have a separate business account and you occasionally spend business money on something personal, don’t delete it. Tag it as money taken out of the business, as described in How do I record money I take out of the business?.
Tip: If you’re planning to grow your business, open a dedicated business bank account. It keeps your finances separate and makes your bookkeeping much simpler.
What is the Proprietor Drawings Account for?
The Proprietor Drawings Account records money that moves between you and your business. It isn’t a real bank account: it keeps track of money you put in (investment), money you take out (drawings) and business costs you pay with your own money.
You’ll find it under Banking > All bank accounts, in the Equity Accounts group.
Think of it as an IOU between you and the business. Money you put in, or business costs you pay personally, make the balance more negative; money you take out makes it less negative. A negative balance means the business owes you money.
How do I record money I put into the business?
Say you open a new business bank account and pay in £500 of your own money as start-up capital.
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Import your bank statement, or add the payment by hand: open the bank account, click New Transaction, enter the date, reference, Money In and the amount, then click Save.
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Click Tag Me on the payment.
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Select Bank transfer between accounts.
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In Transfer from account, select Proprietor Drawings Account.
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Click Continue. The payment is now tagged, and the same amount is recorded on the Proprietor Drawings Account.
Use the same method whenever you put your own money into the business.
How do I record a business expense I paid personally?
This is a common situation: you buy something for the business with your personal debit or credit card. Record it as a normal purchase, but show it as paid from the Proprietor Drawings Account.
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Go to Purchases > Enter new purchase and enter the purchase as usual (supplier, date, category, description and amount).
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Under Payment Details, tick Paid. The amount is filled in for you.
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In Paid From, select Proprietor Drawings Account, and choose the Method (for example Debit Card).
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Click Save Details. QuickFile confirms the purchase has been saved and fully paid.
Please note: Don’t use Petty Cash for things you paid for yourself. Petty Cash is for actual cash held by the business.
How do I record money I take out of the business?
This is the opposite of recording an investment. Your business account will show a Money Out entry for the cash withdrawal or the transfer to your personal account.
- Find the Money Out entry on your business bank account and click Tag Me.
- Select Bank transfer between accounts.
- In Transfer to account, select Proprietor Drawings Account.
- Click Continue.
Do the same for any personal spending that went through your business account.
Tip: You can also tag drawings with Salary or other drawings and set Payment Type to Proprietor Drawings. Both methods record the drawings on the Proprietor Drawings Account.
Which category should I use for an expense?
When you record a purchase, you choose a Category for each line. A category is QuickFile’s simpler name for a nominal account (nominal code). When you save the purchase, the amount is posted to that nominal account, and these postings make up your accounts. Run a Profit and loss report to see where everything has been posted.
To see every nominal account, go to Reports > Chart of accounts. The accounts are numbered and grouped:
| Group | Codes | Shown in the purchase category list? |
|---|---|---|
| Purchases | 5000 - 5999 | Yes |
| Direct Expenses | 6000 - 6999 | Yes |
| Overheads | 7000 - 9999 | Yes |
| Assets and Liabilities | 0001 - 2999 | Only the asset categories, marked [Asset] (for example Furniture and Fixtures, Motor Vehicles, Office Equipment) |
The categories are based on an industry standard that most accountants recognise, and are similar to other accounting packages. If you can’t find an exact match, click Help me Choose a Category above the purchase lines and search for the item. Our guide to categorising your purchases has more advice.
If you need to, you can add your own nominal account from Reports > Chart of accounts > Create New Account. To use it as a purchase category, create it in the Purchases, Direct Expenses or Overheads group.
How do I record income from PayPal and other payment providers?
If you take card or online payments (for example through PayPal or a card machine), the money usually reaches your bank in lump sums, daily or when you choose to withdraw it. To match these lump sums to your individual invoices, set up a separate holding account for the provider in QuickFile.
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Go to Banking > All bank accounts, click Create and select Merchant or Payment Service Account. Give it a clear name, such as “PayPal Holding Account”.
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Tag each lump sum that arrives in your business current account as Bank transfer between accounts, from the holding account.
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Record the payments for your individual invoices into the holding account. This brings the holding account back to zero, or close to it.
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Any balance left over is usually the provider’s charges. Add it to the holding account as a Money Out entry and tag it as a purchase from the provider, using the Bank Charges category.
Our guide to handling payments from merchant accounts explains this in more detail, including how to record a period’s sales as one invoice instead.
How do I record daily sales from a till?
If you run a shop, cafe, restaurant or any business that takes payments through a till, it isn’t practical to create a client and an invoice for every sale. Record your daily totals instead.
Use the Cash Register Tool: go to Sales > Enter cash register takings. For each day (or other period) enter the Date, a Description, and the Cash Total, Card Total and VAT, then click Save Details. QuickFile creates an invoice for each line and records the cash and card payments.
If you need to split your takings across several sales categories (product lines), enter each day’s totals on a single sales invoice instead, as described in accounting for daily takings.
Troubleshooting
A personal purchase from my business account is sitting in my suspense account. How do I clear it?
Tag the payment as Bank transfer between accounts to the Proprietor Drawings Account. As a sole trader, it counts as money you took out of the business.
Should things I paid for personally be recorded against Petty Cash?
No. Petty Cash is for actual cash held by the business. Record the purchase as normal and set Paid From to Proprietor Drawings Account.
Why is my Proprietor Drawings Account balance negative?
A negative balance means you’ve put more into the business (investment and costs you paid personally) than you’ve taken out. In other words, the business owes you that amount.
Related topics
New to QuickFile banking? Start with Setting up your bank accounts and Tagging your bank transactions, which the steps above rely on.
- Setting up your bank accounts: Create and manage your bank, cash, credit card and merchant accounts.
- Tagging your bank transactions: How Tag Me works for each type of bank entry.
- Recording your purchases: Enter purchases and receipts, and record how they were paid.
- Categorising your purchases: Simple rules for picking the right category for an expense.
- Handling payments from merchant accounts: Record lump sums from PayPal, card machines and other providers, step by step.
- Cash Register Tool: Log daily cash and card takings in one go, and change the cash register settings.
- Limited Company Bookkeeping - The Basics: The same basics for limited companies, using the Director’s Loan Account.