Hi I am a little new to Accounting so please bear with me.
I am in business with another person and we are set up as a Partnership. We take the same amount each week from the bank account as a wage. I presume to do this I tag from the bank account to 1203 and 1204 nominal codes. is this correct? From my reading I then need to use the Journals to remove this from here to 3100 is this correct?
That sounds the same as the way I do it for my own partnership - bank transfers to the respective partners’ drawings bank accounts as they take money during the year, then at the end of the year move the year’s drawings into a nominal in the 3000 range (either with a journal or just with a bank transaction tagged to “something not on the list”).
However, I have set up separate per-partner nominal codes in the 3000 range for each individual partner’s capital introduced, drawings taken, and share of the net profit. So rather than just moving all drawings to 3100 and all retained profit to 3101, I put partner A’s drawings in 3102, partner B’s drawings in 3103, partner A’s profit share in 3104 and partner B’s share in 3105.
Ok so what are the 1203 and 1204 used for? Should I just transfer to 3100 on a weekly basis?
1203 and 1204 are your partner drawings accounts (bank accounts). They’re used to basically keep track of money leaving and entering the business to/from a partner. They’re useful to track the balance throughout the year.
The journal at year end would just tie that up and zero the balance.
@ian_roberts’ method of tagging directly to the nominals in the 3000 range by-passes the need to use the bank accounts and the need for a journal.
So would I be better setting up 2 x 3000 codes for Drawings partner A and Drawings Partner B and just tag from th bank each week to these?
It doesn’t really make a difference as long as come the year end the 12xx “bank accounts” have balance zero and the drawings are listed under 31xx for each partner. I personally find it easier to work with the “bank account” view during the year as this makes it easy to record instances where, e.g. one partner buys something for the business using their own personal cash or credit card rather than using “business” funds (you just mark the purchase as being paid for from the relevant drawings bank account).
As part of my year end procedure I add one transaction on the year end date for each 120x account to move the final balance to the matching 310x. This makes the drawings show under “capital and reserves” and removes the 120x bank accounts from “assets and liabilities” on the year end balance sheet.
@QFMathew my reference to “something not on the list” was just an alternative way to move the balance from 120x to 310x without having to create a journal.
Great stuff. Can you help me with a HMRC payment now please. I have an amount showing out of the bank. Some for PAYE and some for NIC. How do I tag these separately from one payment figure in the bank?
There’s been a couple of other threads in the last few days asking about payroll and related things - essentially you need a journal to re-allocate the money so that gross wages and employer’s NI show on your profit and loss and the net amounts you owe to your staff and to HMRC show as liabilities on your balance sheet. If you get the payroll journal right then when you come to pay HMRC you just tag it as payment of PAYE liability and everything balances nicely.
Ok but do I put the NIC and PAYE going out of the bank as two payments even though they go out as one lump for HMRC?
I suggest you read the payroll article in the knowledge base - the journal takes care of (among other things) combining the tax and NI elements into a single “PAYE liability” nominal code on the balance sheet, the payment from the bank then cancels out the liability on the same nominal.
Ok just one last question is there a specific order in which to do these entries?
Not really, you can create journals for any date past, present or future, so you could leave all the journalling to your year end if you like, though until you create the journals any money you’ve paid over to HMRC will appear on your balance sheet as if it were an asset.