I am a sole trader and have a business account and a personal account. when I pay myself wages I do a bank transfer from my business account to my personal account and it is marked on my bank statement as wages. I then tag this in my Quick File statement as proprietors drawings and the proprietors drawing account is incremented by the relevant amount. I don’t put any money into the business.
As the Year goes on the proprietor drawings account balance obviously grows. What do I do with this balance? Is it required for anything as it doesn’t necessarily reflect what is in my personal account so is literally just a tally of everything I have tagged as proprietors drawings. Does doing anything with it, e.g. setting it to zero at any point in the year, affect anything else as all of the withdrawals are already accounted for in my business bank account.
No you dont need to make your drawing account zero.
Capital a/c + profit for the year less drawing will be clubbed together to make capital part of balance sheet. any profit you make will be subject to tax regardless you withdraw it or not
I realise that (I think) but what I was meaning was, does the proprietors drawing account just grow and grow and grow forever? Like say in 10 years, will it be at the total sum of all of wages I’ve paid myself over the last 10 years or would it be normal to set it to zero at some point like year end, or keep it at a sensible figure for some reason? I know that regardless of what I do with it my profit and tax will be the same, but what is the norm for the proprietors drawing account, what does everyone else do with it?
it depends how you want to keep records, at year end if you like to keep separate balances for capital, profit & loss and drawing account then closing balance for year will become opening balance for next year. Generally profit for the year is added to capital a/c and drawing subtracted to get one balance which moves to next year. So in essence 3 accounts zum together at year end procedure
Like Lurch, I have not introduced any capital into my business but will be paying myself a wage (proprietor drawings) very soon. I have no fixed assets on the bal sheet so current assets must equal capital (or in my case net profit), less drawings. I have tried an example where I have raised a transaction to take £50 out of the current account (as my wages) and tagged this so that it shows as £50 coming into the proprietors drawings account.
When I check the balance sheet I find that the £50 shows as a current asset under nominal 1202! This can’t be right - I need it appear as a deduction from net profit. Accounting convention says that amounts paid by a business to its proprietor are treated by accountants as withdrawals of profit. Profits are capital as long as they are retained in the business and when paid out, the business suffers a reduction in capital.
I would welcome your comments/thoughts.
Thank you - that certainly looks better. I guess, alternatively I could post it to 1202 initially and then journal it across to 3100. Would that be more correct? Once a journal is done, is it possible to reverse/delete it in a similar fashion to detagging and deleting an entry?
I have a cost which must, I am told, be put through the books as drawings. I have set up the supplier, raised a purchase order (costing it to UK entertaining) and uploaded the amount into my business current account. I have tagged the amount to the purchase, but I am left with the situation where the cost has been posted to nominal 7403 (UK ent’t). Must I now journal it from 7403 to 3100 or have I done the initial purchase order allocation wrongly?
With respect, you are not consistent with your answer on this theme. Under a thread of business and private expenses, you said, on 20/2/2014 that ‘Any private spendings are Drawings, non business expense’ I took my wife out for dinner, which is clearly not subsistence, yet you say I can leave it costed as an overhead - I am confused…
Accountancy profit are not always same as taxable profits. Drawings are not expenses, similarly any expenses in P&l for accounting point of view can be added back to reach tax profit e.g depreciation
My profits will fall under the hmrc threshold so i will not be subject to any income tax. I believe the cost of having this meal out is a private spend (NOT an expense) so it must be coded to and treated as proprietor drawings. The Purchase I raised was coded to 7403 (UK ent’t) so I need to journal this to 3100. In double-entry speak, that will be Cr 7403 and Dr 3100 - is that correct?