Hi Mark
Could you kindly advise on the following? I have seen a similar scenario in the forum, but not exactly the same, so the answer may be different. I use solar for a sole trader heating & plumbing business. Due to recent cash flow issues, the business bank account has had to ‘borrow’ money from the owner’s personal bank account. So for example, £300 is transferred from the personal account to the business account to cover business expenses and then when the cash flow recovers, the £300 is returned back to the personal account. Can you please summarise the entries in SA to reflect this.
Secondly, the business was setup with £1000 of personal funds which has been recorded as a general transaction from the owner’s capital account to the cheque account. What if the owner now wants to treat this as a loan and repay the £1000 back to personal funds?
I take it that with the above scenarios, the funds paid back are not treated as drawings but as ‘loan repayments’.
I would be grateful for your clarification.
E Robinson
Hi E Robinson,
If you are self-employed I don't think there is any benefit to treating the money as a loan and I think it's more accurate to record it as the injection of equity into the business. Therefore I recommend you record it as follows:
When you transfer money into the business bank account create a General Transaction from either the 'Owners Capital' account or the 'Owners Drawings and Personal Use' account to the 'Cheque Account'.
When you transfer money to your personal bank account create a General Transaction from the Cheque Account to the 'Owners Drawings and Personal Use' account.
Regards,
Would that not leave the Owners Capital in the minus?
Hi Mario,
No the Owners Capital balance acts like a credit card - when you take money out the balance is increased. You can think of it as the opposite of an asset account like a bank account.
Regards,
