I think I know the answer to this but I want to make I'm doing this right.

I'm self-employed. I put a lump sum in to the business at the start. I record that as Owners Equity/Owners capital (or similarly named equity account)

When I make a purchase for the business out of my personal funds, I record this against a liability account (Eg "Company Owes Me").

The "retained earnings" account is updated "auto-magically" when the end of year process is followed ie http://www.solaraccounts.co.uk/forum/topic.php?TopicId=233

When I wish to take money out of the business. I can set it against any of the above three accounts? Is it down to personal preference which account the money should be recorded against? At present I reduce "company owes me" first, then "Owners Capitol" and but only take from retained earnings. If/when the others are both back at zero. Is that the correct way or does it really not matter.

Thanks,
Ian.

Something has just occurred to me. Is there any advantage in having that initial investment in the business in a separate 'equity' account. Would it make more sense to just put it into the 'business owes me' liability account?

Hi Ian,

Generally speaking, Liabilities represent money owed by the business to people who aren't the business owner. Equity represents money owed by the business to the owner(s). It's therefore better if you use an equity account when you withdraw the funds from the business. We recommend using the 'Owners Drawings and Personal Use' equity account so you can see the total amount you have put into the business and the total amount you have withdrawn. Check this with your accountant though as he/she may prefer a different approach.

Regards,