I used this when i had to pay for some business expenses via my personal account. I noticed that in the last tax year one of my larger salaries (self employed so salary not regular) I transferred it to this account to reduce the amount.
My question is should I have just left the amount as now there’s a huge gap in my salary payments meaning that my profit seems larger than it is if that makes sense?
Can someone clarify for me?
Hi @NEC
The basics of it is, the virtual bank account is there more for convenience - to see what the business ‘owes’ the sole trader etc. I put owes in inverted commas as there is no legal separation between you and the business itself.
In essence, what you should be doing is tagging any payments you make personally for the business (e.g. paying off your credit/debit card for a business purchase) from this account so it shows the business owes you the money. From your post, I gather you are doing this correctly.
When it comes to taking a ‘salary’ (again, in inverted commas as you can only take drawings), you would tag the payment from the business current account to the drawings account eventually cancelling the balance out, or watching it steady increase.
You should, on a regular basis (say, at the end of your accounting period), journal the balance from there to a different nominal code. There’s more on this here.
It’s worth noting however that the virtual bank account would be treated as an asset or liability (depending on it’s balance), so it won’t affect your profit and loss.
I hope that helps clear it up, but please feel free to come back with further questions and we’ll try our best to offer generic guidance.
Hi, sorry to resurrect an old thread, I’ve now got a significant credit in the proprietors drawing account. Not sure why as the bank transfer I did should have paid that off and then the rest should have been salary.
Is it possible to unlock the accounts and redo the transaction so it shows as 0 'ing the balance and then the rest as salary?
Hi @NEC
I assume that the credit that’s built up is what you’ve taken as drawings from the business - is that correct?
It’s perfectly fine for these to build up, but remember to journal these to 3100. You don’t necessarily have to wait until year end to sort this either. You can do this on a monthly basis if you’d prefer - the choice is yours.
You can certainly unlock any locked accounts, but it depends on how they’ve been locked. I’d imagine the transfers would have been locked by a year end journal. There’s more info on removing this lock here:
No i don’t use the proprietors drawing account anymore hence wanting to get rid of this credit.
I just pay myself, then reconcile it from the bank account as wages. What I should have done here was pay off the balance and then the rest as wages.
The journal would be the best way to move this balance over to your balance sheet. Take a look at the link I posted in my first reply - there’s quite a detailed guide there on how to do this. This could then be used to zero the balance of the proprietors account.
However, can I just clarify - are you using the wage nominal codes, and are you a sole trader?
Yes I did that last year after being told to avoid the proprietors drawing account mounting up. In reality I don’t need quickfile as my accounts are simple in and outs. Having experience of the likes of Xero etc I felt it was overkill for what I needed especially I am now part time so Quickfile was an option but the old software I used was easier for seeing what was coming in and the proprietors account keeps stacking up when taking drawings all the time and the advice I got was that. Having worked in finance I thought it was strange but still…
As a sole trader, you shouldn’t be classifying the money you personally take out of the business as wages, they should be assigned to the Drawings nominal account (3100 I believe). Because there’s no legal separation between a sole trader and the business, they aren’t technically wages.
The wages nominals are more for those that you employ.
Using the drawings account for your drawings (your “wages” if you like) is correct. But journalling them out at year end or on a regular basis, would move it to your balance sheet and zero the account.
The journal would be like this, for example:
This moves a balance of £1,000.00 from 1202 (The bank account) to 3100 (on the balance sheet)
Which in effect, looks like this:
You could save a job in between and tag them straight to 3100 by using the ‘Something else not on the list’ option, instead of tagging them as a transfer to the Proprietors Drawings Account. We have users who use either method - both of which are fine.
I know that’s what frustrated me. I’ll switch them back now.
It’s not offering an option to delete the year end journal entry??
Sorry to resurrect an old thread but thought it better seen as it kind of relates.
OK I’m journaling an amount from 1202 PDA to 3100 however when I do an advanced search in the PDA my credits don’t equal my debits and one needs to balance the other out. I may have been staring at this for too long but I can’t fathom it.
Yes, it is. I’m probably going cross eyes staring at it, so it’s probably really obvious.
Let me send you a private message. Please look for the green notification in the top right hand corner.
Rather than a journal, I’d just enter a “money out” transaction on the PD bank account for the appropriate amount and tag it to “something else not on the list” to 3100.
