Hi all, I am brand new, like way new. Essentially i have done a few DJ gigs as a side hustle, but started to take it seriously a few weeks ago. Most of what i do is cash in hand that i deposit into the bank.
My question is, if i bought a used laptop on ebay. I have tracked that spend in my proprietor drawings which has sent that into a negative balance. But i have the money cash in hand in my petty cash accounts. I get these are not “real” accounts and are just accounting for where the money is. So do I transfer the cost of the laptop from my petty cash into proprietor to effectivly balance that account off.
It was a cheap laptop so we are talking £158. But i bought it for the DJ setup. I’m litterally small and likely to only just go over the threshold for declaring, but i want to be above board if there is any risk.
My proprietor account is my personal bank account. My “current account” is a new account i have just set up again a personal one until I figure out if this is something i decide to commit to. So far it seems almost straight forward. But I guess i’m just second guessing myself.
The final question is, the laptop itself. I have read different opinion on this board. I coded it to office equipment but that means it’s not decuted. Some people on the forum say if its below a certain value class it as general. Others claim AIA. Whats the best route forward on that?
Thanks in advance, and sorry if these questions are super dumb.
This part is simple enough. The “proprietor drawings” account tracks movements of money between “you” and “your business” (in quotes as legally the two are the same thing when you’re a sole trader). The “petty cash” account tracks cash you hold that in some sense belongs to the business, typically the contents of your cash box or till drawer.
if a customer pays you in cash, that invoice would be marked as paid into the petty cash account
if you deposit that cash in the bank you would tag the money in transaction on the bank account as a transfer from petty cash - the funds have moved from your cash box to your bank account
if you use some of the cash in your cash box to purchase something for the business, that purchase would be marked as paid from the petty cash account - you’ve reduced the amount in the cash box by the value of the purchase
if you take some of the cash for personal use, or to reimburse a business purchase that you made with personal money, that would be a bank transfer from petty cash to proprietor drawings. Since in this case you don’t have a bank feed creating an untagged transaction for either end of this transfer, you’ll have to use the “new transaction” button to create one end of the transfer (out from petty cash or in to drawings) and when you tag it as a bank transfer it’ll create the other end for you
Yeah thats pretty much what i thought.
I think the only thing i need to clear up is if I bought something via my normal bank, so proprieter drawings when i log it on quickfile. Is it ok to balance that off with a transfer from petty cash i had in hand.
So for example i used the cash to pay for shopping etc, which usually would have come from my main bank. I then purchased the laptop i won an auction for. So do i just move the money to make it balanced off. So far im not taking anything out of the buisness directly as I want to upgrade old equipment ive had for decades when i did it as a hobby.
Yes, that’s fine. You’ve taken money out of the business cash box for personal use (or in this case to offset personal money you’d already spent on business costs), which is precisely a transfer from cash to drawings. Or if the personal payment and the petty cash reimbursement are basically at the same time then you might as well log the purchase as paid from petty cash in the first place and bypass the drawings account. Either way the eventual end result is that the business incurred a cost of £158 for the laptop and the petty cash account is £158 down from where it was before.
Final question and i appreicate it may not be known. But the laptop, i have read a few different threads and im at a loss. I have tracked it as office equipment which goes as an asset. But i read some threads say laptops under a certain value shouldnt be classed as an asset and just off set straight away. Ultimatley i get if i bought £2000 worth of speakers, they would be assets and need to depreciate etc. But the laptop i bought in an auction on ebay, got a really good low price on it, works great and does everything i need it for to DJ. But Asset or Misc Purchase. My gut says asset, but given the value of it being quite low. Same goes if i bought like a T-Bar or Light for £100 ish, are they assets with the low value?
Thanks for answering the previous question. I figured it was the right thing but just 2nd guessing myself.
That part of the question is asking for accountancy advice, which I’m not qualified to give. I can tell you how to record a purchase or how to handle depreciation on assets, but I can’t advise about which treatment is appropriate for your particular situation.
A single purchase of a hundred quid or so would probably make sense just to expense. One LED parcan for £100 - probably an expense, but if you end up buying eight parcans, two T-bars, two tripods and a DMX controller over the course of a year… even in separate transactions of ~£100 each, the aggregate is probably getting into asset territory. Only your accountant can really advise.
Nothing’s really final until you come to doing your tax return, you can always re-classify things or move balances around with journals if you change your mind or get more detailed advice later.
A fixed asset is an item of equipment that you plan to use in the business and keep for more than a year, usually two years or more. If it’s a very cheap item, you would just charge it as an expense (overhead) and claim it as a deduction against any profits you make. This is also the way you would treat it if you are “cash accounting”, i.e. if you are only looking at payments out and payments in, and not worrying about accounting for invoices paid later than the endo f the tax year end.
Given the current size of your business, I would suggest this is the simplest approach, and HMRC are actively encouraging small business owners to use cash accounting now, in fact it is the default on the self-employment pages of the tax return.
You can class it as a fixed asset, but this would mean you are using what is termed “accruals accounting” and rather than just worrying about the cash/bank side of things, you would also need to account for any invoices received but not yet paid at the end of the year, and any work you may have done for which you hadn’t been paid. It is a little more complicated, and also means that the cost of any fixed assets get added to your balance sheet, depreciated over the year, and then claimed as a capital allowance on your tax return.