I know that it can be a bit of a muddle as a sole trader since you and the business are one and the same, but for the sake of clear accounting I have a question.
I initially set aside starting capital for the business. I have now withdrawn this as the business has enough cash to survive. In future, when I want to withdraw cash from the business, how should this be done? If I simply transfer to Proprietor Drawings, doesn’t that balance then grow every time and show as an asset, when it isn’t really a business asset any more since I’m going to use it for personal expenditure which isn’t recorded. Should I record it as salary? Doesn’t seem right since I’m not an employee.
Following the simple tagging process, tagging a transfer between current a/c and prop drawings, it shows noting in capital and reserves and a £1 asset.
I dont have sole trader data set, not sure why tagging is throwing drawing as asset BUT if we have to compile statutory accounts it would club figures together from Capital a/c,P&L,drawings to get capital & reserve footing of balance sheet as shown in picture below
Maybe I can help; as the accountant says capital is what the owners put into the business and withdrawals of this is known as drawings. Remember also that Assets less liabilities = capital + profits less losses less drawings.
If you spend, say £5, (which is classed as drawings), raise a money out transaction from within your current account. Tag it, select ‘something else not on the list’, then from the post to drop down, select proprietor or partner drawings and give it some description and save. The system will then Cr your bank (to reduce it) and Dr the account 3100 (to reduce it). Then when you look at your balance sheet you will see a P&L figure and an amount of £5 (in red) against account 3100 - both of which sit in the capital and reserves section.
