I have been doing some reading but am still unclear about how I record drawings as a sole trader. I understand I am supposed to do it as a transfer between the account I use for business purposes and the “Proprietors Drawings Account” but this will leave the money on the balance sheet when it should really be coming off the P&L.
Hi @Hactar
There’s no legal separation between a sole trader and the business, so nothing should be showing on your profit and loss account for drawings. Your profit is seen as your income by HMRC.
It’s generally seen as good practice to journal the balances from 1202 to 3100 during the year to show capital introduced and drawings correctly on the balance sheet, otherwise the money held in the drawings account would be seen as an asset. Let me know you need help with this 
I think my confusion was being caused by 1202 showing as an asset that will just go up and up forever. Which bits should be journaled into 3100?
The first thing you need to do is have a capital account for the drawings account. If you don’t have one on your chart of accounts, you can add one by going to More Options > Add Popular Accounts:
NOTE: Any sole trader accounts created since April 2017 will have this nominal account included by default.
Then you need to check what needs to go where. So in my example, I have introduced £5,000 capital to the business, and also taken £1,000 out:
If you have lots of entries, it won’t be as easy as looking at the rows - I’d recommend using the advanced search to get the figures:
Then you would create a journal along these lines:
1202 DR 5000 Capital (Proprietor’s Drawings Account)
3300 CR 5000 Capital (Capital Introduced for Sole Traders)
1202 CR 1000 Drawings (Proprietor’s Drawings Account)
3100 DR 1000 Drawings (Proprietor or Partner Drawings)
which would give you this result on the balance sheet:
As you see, this then specifically shows the capital introduced, and the drawings taken.
Hope that helps?
2 Likes
So if I have made several purchases and paid them all from 1202, would I just create a single journal to 3300 for all of these?
Would I do this monthly or is there some other frequency more accepted?
A single journal should be fine - it’s the end figure that’s of more interest. For any further details, the virtual bank account should show more than enough.
You can probably do them at an interval that suits you, but try and do them in time for your self assessment so you have the figures ready for HMRC
I just journal the drawings showing in 1202 over to 3100 once a month. This prevents the proprietors drawings account becoming an ever increasing asset.
2 Likes
I have just tried this and seem to have a problem…
For the month of April I spent £150.85 entered to 1202, these are all debits in the account and there are no credits.
I just created a journal crediting 1202 and debiting 3300 for this amount.
I have checked the journal and it is definitely in this direction but when I go into the 1202 account is has entered it as a debit and sent the balance the wrong way.
I just noticed if I check the bank statement for 1202 it shows my payments as debits, but if I go through the chart of accounts to the same account it shows them as credits.
I assume the bank statement has it the wrong way round?
I changed the journal to Dr 1202 and Cr 3300 and things seem to be okay now.
This also means the very well documented example with animated gif files above, has it the wrong way round?
Bank statements are in reverse (credits become debits, debits become credits) on the chart of accounts which is where the confusion may be?
[Edit]
You’re right - I listed the debits and credits the wrong way around above! I have now amended the post. Good spot!
That is probably it, I was following your original instructions where you used the bank statement and then said…
[quote=“QFMathew”]Then you would create a journal along these lines:
1202 CR 5000 Capital
3300 DR 5000 Capital
[/quote]
Thanks for all the help, it seems to be working okay now.
1 Like
The bank statement view in QuickFile is very careful not to use the terms “debit” and “credit”, but rather “money in” and “money out” (except in the advanced search box). In accounting terms, the credit side of a transaction is where the money comes from and the debit side is where the money goes to, so in your books “money in” bank transactions are debits in the nominal ledger and “money out” transactions are credits.
This seems weird at first glance when you’re used to the statements you receive from your bank, but remember that those statements are from the point of view of the bank, not the customer. When you pay money into your bank account the bank sees it as money moving from you (credit) to them (debit), and vice-versa for withdrawals.
Gosh im so confused. If i transfer say £100 to my business bank account from my personal account it shows as a credit on my business bank statement (as it should). I then import the bank statement to QuickFile and again it shows as a credit under the Business Bank account in quickfile. I tag this entry as a transfer from proprietors account > business account.
Following the steps above I totalled up the amount of debits and credits to the proprietor account and created a journal entry accordingly. It gave me the result on the balance sheet but then the proprietors account seemed to look incorrect? The journal entries showed in the proprietors account, what i dont understand is this…so for this example lets follow the £100
£100 PERSONAL CASH > Business Account > tagged as transfer from proprietors account ( Proprietors account now shows £100 MONEY OUT)
I spend £50 to purchase a personal item using my Buisness Debit card and this shows on my bank statement as say for example PAYMENT TO SHOP > I tag the entry that shows in quickfile as > TRANSFER FROM BUSINESS ACCOUNT TO PROPRIETORS ACCOUNT
Proprietors Business Account now shows - £50 MONEY IN
In order for the above to show on the P + L i follow the example above, the capital introduced and drawings taken now show on the P+L HOWEVER, when looking back at the Proprietors drawing account after the journal entry has been made- the money in and money out are now repeated and tagged as a journal entry and the MONEY IN and MONEY OUT figures are now doubled?
This makes no sense to me whatsoever - can someone please explain?
Thanks very much 
What exactly did you journal? I’m slightly confused by you saying “In order for the above to show on the P + L” - the transactions you describe of introducing capital and making personal purchases (i.e. drawings) from your business account are not supposed to affect P&L at all.
Drawings and capital belong on your balance sheet, when you enter the transfers of £100 from Proprietor Drawings to Current Account and £50 back the other way you end up with a £50 “asset” on your balance sheet for the Proprietor Drawings account. The purpose of the journals is to move this from assets into the capital & reserves section and distinguish capital introduced from drawings taken.
The journal for this case would be
- 3300 credit £100 (capital introduced)
- 1202 debit £100
- 1202 credit £50
- 3100 debit £50 (drawings)
This should counter (not duplicate) the existing transactions on 1202 leaving it at £0 balance, and show the capital introduction and drawings taken in the right place on your balance sheet.
I followed the example above by QF Support. I will try what you exampled, I assume i total the amount of credit ( introduced by me ) and the debits ( taken by me) for the whole year from proprietors drawings? thanks