drawings v a wage ??

[goindownhill]

Sorry as a newbie this may be a daft question!!
What ( if any ) are the advantages of taking ' drawings ' rather than a wage from a small sole trader business.

thanks. john.

 

[los_design]

Sorry as a newbie this may be a daft question!!
What ( if any ) are the advantages of taking ' drawings ' rather than a wage from a small sole trader business.

thanks. john.

I think that as a ST your wages are indeed know as drawings (from your profit)...

BUT I am not a pro accnt.

 

[David Griffiths]

Sorry as a newbie this may be a daft question!!
What ( if any ) are the advantages of taking ' drawings ' rather than a wage from a small sole trader business.

thanks. john.

There's no difference. The previous poster is correct - what you take from a sole trade business is called drawings (of profit) not a wage, and has no bearing on the tax liability

 

[goindownhill]

Thankyou both kindly. That makes a bit more sense of the profit/loss balance sheet I was given to look at. it made grim reading untill you add the drawings to the profit.
thanks again.John.

 

[MyAccountantOnline]

Thankyou both kindly. That makes a bit more sense of the profit/loss balance sheet I was given to look at. it made grim reading untill you add the drawings to the profit.
thanks again.John.

Not sure why you would add them together?

Are you looking at buying a business?

 

[ZHopps]

You should not be adding them together.
For a sole trader, the 'drawings' figure (ie what you take out of the business) appears on the balance sheet and does not appear on the profit & loss account.
The 'profit' on the P&L is just that - the drawings do not play any part in calculating the P&L.

 

[goindownhill]

Thanks 4 replies, bearing in mind im new to business , I asked the current owner for his accounts to scrutinise. Last year showed a profit of lets say 23k ( not too hot ) and the previous year 10k!! ( not good at all ) but in each of these years around 14k in drawings was shown . Now the way that reads in my inexperienced mind is that these profits were shown after the drawings which is why I added them ie I would have drawn 14k during the year , and then had profits too .It appears I may be wrong.
I earn 30k presently as an employee (unrelated to this business ) , seriously considering pulling out of the purchase.:|

 

[RAL]

As already commented that if you are a sole trader, drawing does not affect your profit. It affect how much you leave in business i.e. retained profit.

On serious note, before you purchase this business get an accountant to have a look at the books and accounts. Also do lots of due diligenace.

 

[goindownhill]

Thanks ral, I did get an accountant to look at the accounts . I sat down with him and he read the 2 yrs of profits to me as 10 and 23K which is just not good enough. I said to him then what about these drawings to which he told me these wer effectivley the owners wages which lead me to my conclusion. Not overly impressed with the accounts or the accountant.
The seller has said that the accounts dont tell the whole story if you know what I mean, but Im not interested in any income thats not in black and white.
Thanks again. John.