I think this thread needs to be narrowed down a little as the process is different for Limited Companies when compared to Sole Traders. I understand @purplesalix is trading as an LTD whereas @Fanflame is a sole trader, please correct me if I’m wrong?
The process for Limited Companies is a little more straight forward as the Limited Company is a distinct legal entity from it’s directors, unlike sole traders who’s business and personal finances are more intertwined. But the proprietor drawings balance is not so important for sole trader accounting, so @Fanflame, please see the points I’ve made further down.
Just as a separate reference, if you’ve not done so already please refer to the following two guides:
For Limited Companies
For LTDs everything revolves around the Director’s Loan Account, this is a type of bank account in QuickFile but all it does is track how much money the company owes the director or vice versa at any given time. So as a director I pay £20 for some company stationery using my own personal debit card, at this point the company owes me £20. I would log this as follows:
- Enter a purchase invoice in QuickFile for the ÂŁ20 stationery purchase and pay this into the Directors Loan Account.
- Now (assuming the DLA was at zero before) the DLA account shows as ÂŁ20 overdrawn, like any other bank account would. An overdrawn bank account in the name of the company is a liability on the balance sheet.
- A couple of weeks later I want to reimburse myself the ÂŁ20, so I make a BACs transfer from the company LTD to my personal account.
- The withdrawal shows on QuickFile as a debit from the company account, now I tag this as bank transfer to the DLA. This brings the DLA account back to zero, to show that the company has no further liability to it’s director(s).
Really that’s all there is too it, whenever you incur an expense as an LTD you record it and later reimburse on the DLA account. A DLA in credit means the Director(s) owe money to the company, in debit the company owes the director(s).
For Sole Traders
In sole trader accounting we’re only interested really in recording those expenses that are business related, anything else is not relevant. Unlike LTDs sole traders have no legal distinction between themselves and the business.
It can be confusing but you can’t owe your business money as they’re one and the same, but a director can owe money to his/her LTD as they are distinct legal entities.
For sole traders you would normally use the Proprietor Drawings Account to dump anything that is regarded as a personal expense and not relating to the business. It doesn’t need to be balanced off it’s just a way of categorising certain entries on your bank statement as non-business, so you just tag it as a transfer to the Proprieter Drawings Account.
The Proprieter Drawings Account is not so important for your final tax calc so I wouldn’t worry to much about the balance there. The most important thing for sole traders is having an accurate Profit and Loss report at the year end, to which end the proprietor drawings account is not important as it’s a balance sheet account (like all bank accounts).
If the cross is greyed out it means that the transaction is locked, normally for one of two reasons, it’s been reconciled in a VAT return or it has been locked down by closing an accounting period.