Personal Accounts & Bank Feeds

[numbersrule]

If a Sole Trader uses a single Personal Bank Account for all their Business and Personal Transactions is it possible to still use Online Accounting Software without having the bank account in the software and instead just run a Nominal Account as a 'Partial Bank Account' so that the bank feed option can be completely avoided and to ensure that all the personal transactions can be excluded?

 

[Ziggy2024]

Yes. You can import the transactions that are business related only instead of having a bank feed. Or even manually enter them.

Not ideal as you will know and if investigated HMRC will be entitled to inspect this account.

 

[DontAsk]

I would first check whether using a personal account for business in this way is allowed by the bank.

When SWMBO set up as a sole trader she had to open a separate account.

You really should have separate account in any case.

 

[Scalloway]

Can you not just post non business transactions to Drawings?

 

[Daybooks]

If a Sole Trader uses a single Personal Bank Account for all their Business and Personal Transactions is it possible to still use Online Accounting Software without having the bank account in the software and instead just run a Nominal Account as a 'Partial Bank Account' so that the bank feed option can be completely avoided and to ensure that all the personal transactions can be excluded?

Using a non designated bank account might cause more problems than it solves as you may have difficulties "allocating" - unless of course just "cash basis" is being used - and would probably require journal entries to post what you require. Why not just use the designated bank account and just don't use the bank feeds? At best bank feeds make the accounting reactive rather than proactive. You might find it a breath of fresh air! I assume/hope the online system isn't making bank feeds mandatory.

 

[Daybooks]

You really should have separate account in any case.

It is advisable but not mandatory. Some individuals may be prohibited from opening a second account; as obscene as that may be. Banks operate as they please at times.

 

[numbersrule]

Using a non designated bank account might cause more problems than it solves as you may have difficulties "allocating" - unless of course just "cash basis" is being used - and would probably require journal entries to post what you require. Why not just use the designated bank account and just don't use the bank feeds? At best bank feeds make the accounting reactive rather than proactive. You might find it a breath of fresh air! I assume/hope the online system isn't making bank feeds mandatory.

The way I see it working is the sales receipt double entry which would normally be

Debit Bank
Credit Sales Ledger

Would instead be:

Debit Nominal Account called Bank
Credit Sales Ledger

( but I am hoping to find a bulk process for multiple journal transactions )

The Invoice preceding that would create the following double entry:

Debit Sales Ledger
Credit Sales

I'm not suggesting bank feeds are mandatory but might it be that a bank account is mandatory?

Maybe I'm over thinking it, but what I find troubling about using a bank account in the software without the bank feed is that the bank account won't be real because none of the personal transactions will be recorded.

I don't agree with Scalloway's suggestion of posting to Drawings because the personal transactions were never in the business in the first place. This is why the use of personal accounts for business is so unsatisfactory.

 

[Ziggy2024]

The way I see it working is the sales receipt double entry which would normally be

Debit Bank
Credit Sales Ledger

Would instead be:

Debit Nominal Account called Bank
Credit Sales Ledger

( but I am hoping to find a bulk process for multiple journal transactions )

The Invoice preceding that would create the following double entry:

Debit Sales Ledger
Credit Sales

I'm not suggesting bank feeds are mandatory but might it be that a bank account is mandatory?

Maybe I'm over thinking it, but what I find troubling about using a bank account in the software without the bank feed is that the bank account won't be real because none of the personal transactions will be recorded.

I don't agree with Scalloway's suggestion of posting to Drawings because the personal transactions were never in the business in the first place. This is why the use of personal accounts for business is so unsatisfactory.

Depending on which software you use, you can enable a capital account to accept payments and receipts so essentially a pseudo bank.
If the software doesn't allow that, the easiest option is to set up a bank account (call it drawings or personal to clearly mark it as not a business account) and import the transactions you need to use.

Nothing is mandatory in a set of accounts or bookkeeping records. You are just recording the transactions that are occurring. Using a feed or importing will make your job much easier so start from there and work out how to make the records reflect the true position of the business.

 

[Daybooks]

The way I see it working is the sales receipt double entry which would normally be

Debit Bank
Credit Sales Ledger

Would instead be:

Debit Nominal Account called Bank
Credit Sales Ledger

( but I am hoping to find a bulk process for multiple journal transactions )

The Invoice preceding that would create the following double entry:

Debit Sales Ledger
Credit Sales

I'm not suggesting bank feeds are mandatory but might it be that a bank account is mandatory?

Maybe I'm over thinking it, but what I find troubling about using a bank account in the software without the bank feed is that the bank account won't be real because none of the personal transactions will be recorded.

I don't agree with Scalloway's suggestion of posting to Drawings because the personal transactions were never in the business in the first place. This is why the use of personal accounts for business is so unsatisfactory.

Your entries are of course correct but the operation of the journal entry to post the “cash bank” entry is going to cause you problems. By posting that journal entry to the Sales Ledger Control Account it will not have a customer associated (pretty sure these online accounting systems don’t have that capability; even more of an issue if VAT was involved). Therefore your Aged Debtor reports and the like will not be picking up these bank receipts whereas the Control Account will have it in its balance. Reconciling the outstanding debtors at a period end will then also become very difficult.

I know you didn’t say bank feeds might be mandatory but wondered whether you were exploring this route simply because its use was mandatory. However the use of bank feeds is not all it is hyped up to be. Whilst they are a useful tool it encourages reactive accounting. For example if I make a payment I will record it immediately; it reduces the possibility of paying the same invoice twice and at month end my bank reconciliations will be performed exactly the way they were intended. I may be traditional but tradition is for a reason.

However if you are happy with the reactive approach – i.e. account for it only when it appears on my bank feed or from my csv download then that is equally fine. If the bank feed “forces” you to bring all entries in then I wouldn’t use that method as you are going to have lots of unwanted entries to find a home and a bank balance representing the personal account not just the business element.

A better alternative I believe, regardless, would be to use the designated bank account but never use the bank feeds. Instead take the bank csv file, remove the non business transactions, then import that into the online accounting system. Then you can match up any receipts and payments to the sales and bought ledgers as needed. You are not going to get a bank reconciliation directly to the personal bank statement but none the less you can still verify the entries.

One of my clients uses the personal account and they just use a simple Receipts and Payments Account. Takes them a few minutes a week to write up their entries; we don't have any problems.

 

[Bobbo]

If you are not going to record all bank transactions then IMO there is no point having any 'bank' nominal as the balance on said nominal will bear no resemblance to the actual balance on the bank account.

 

[Daybooks]

If you are not going to record all bank transactions then IMO there is no point having any 'bank' nominal as the balance on said nominal will bear no resemblance to the actual balance on the bank account.

Without a designated system bank account you will create other problems as alluded to above.

Posting all transaction again causes other issues. The bank reconciliation might be comprehensive but worthless in terms of the true business balance. It might seem “ideal” but generating extra work that offers no tangible benefit and causes more problems than it solves possibly falls into the “busy fool” category. Fortunately, the user chooses.

 

[ecommerce84]

If this is a real scenario would the additional work you have to do incur an additional charge to your client?

I would wager that the primary reason many sole traders use a personal bank account is because they don’t want to pay for a business one. But if they’d incur more charges from their bookkeeper because of this then it would make more sense to set up a business bank, pay the charge and pay the bookkeeper less.

 

[Ziggy2024]

If you are not going to record all bank transactions then IMO there is no point having any 'bank' nominal as the balance on said nominal will bear no resemblance to the actual balance on the bank account.

You don't need a bank account in the software. However, you do need a double entry, the easiest one on software being a bank account (due to how it operates).

This thread is about bookkeeping where the detail matters, the accounts and related tax return are a different matter where the bank account can effectively be ignored.

 

[numbersrule]

Without a designated system bank account you will create other problems as alluded to above.

Posting all transaction again causes other issues. The bank reconciliation might be comprehensive but worthless in terms of the true business balance. It might seem “ideal” but generating extra work that offers no tangible benefit and causes more problems than it solves possibly falls into the “busy fool” category. Fortunately, the user chooses.

Thanks Daybooks. I totally get everything you have said and I now agree, the best option is to use the online accounting software the way it is intended and manually import the relevant transactions into a software 'bank account'.

Certainly wouldn't want to be a busy fool!

 

[numbersrule]

You don't need a bank account in the software. However, you do need a double entry, the easiest one on software being a bank account (due to how it operates).

This thread is about bookkeeping where the detail matters, the accounts and related tax return are a different matter where the bank account can effectively be ignored.

Hi Ziggy2024
I know what you are trying to say but of course the 'cash in the bank' will still be a current asset even though the balance is not the same as the actual personal Bank Account.

 

[Ziggy2024]

Hi Ziggy2024
I know what you are trying to say but of course the 'cash in the bank' will still be a current asset even though the balance is not the same as the actual personal Bank Account.

No it won't. When it comes to the preparation of the accounts it will form part of the capital account.

 

[Scalloway]

No it won't. When it comes to the preparation of the accounts it will form part of the capital account.

No.
The Balance Sheet has two sides, Current Assets including Bank and Capital which represents the sum due to the owner by the business. That is how double entry works.

 

[Daybooks]

Thanks Daybooks. I totally get everything you have said and I now agree, the best option is to use the online accounting software the way it is intended and manually import the relevant transactions into a software 'bank account'.

Certainly wouldn't want to be a busy fool!

Worth also remembering (courtesy of Frank Wood) that one of the basic concepts in accounting is that of the “business entity” concept. Accounting records are limited to that of the business and do not extend to the personal resources of its owners.

 

[Ziggy2024]

No.
The Balance Sheet has two sides, Current Assets including Bank and Capital which represents the sum due to the owner by the business. That is how double entry works.

Instead of the bank balance as a current asset it sits in drawings in the capital account. As a sole trader and their business are indistinguishable the balance sheet is sometimes superfluous anyway.

Well aware of how a balance sheet and double entry works, see my comments on the stock valuation thread!

Thanks Daybooks. I totally get everything you have said and I now agree, the best option is to use the online accounting software the way it is intended and manually import the relevant transactions into a software 'bank account'.

Certainly wouldn't want to be a busy fool!

That is literally what I said in the first comment!

 

[Daybooks]

That is literally what I said in the first comment!

True, but hopefully the difference now appears that the OP is making an informed decision and most likely will be equally circumspect in the future.

 

[Daybooks]

No it won't. When it comes to the preparation of the accounts it will form part of the capital account.

@B2 Bookkeeper is correct because of the Business Entity concept.

 

[numbersrule]

Instead of the bank balance as a current asset it sits in drawings in the capital account. As a sole trader and their business are indistinguishable the balance sheet is sometimes superfluous anyway.

Cash would only sit in drawings if it had been drawn.
The software bank account would effectively be a business bank account.
Cash in a business bank account is not drawings.

An individual person and their sole trader business are brought together under one roof so to speak in a HMRC Self Assessment. This is why it is often said that the two are inseparable. But the business can be treated as separate in online accounting software so that the Self Employed 'Profit 'can be accurately assessed.

 

[Ziggy2024]

Cash would only sit in drawings if it had been drawn.
The software bank account would effectively be a business bank account.
Cash in a business bank account is not drawings.

An individual person and their sole trader business are brought together under one roof so to speak in a HMRC Self Assessment. This is why it is often said that the two are inseparable. But the business can be treated as separate in online accounting software so that the Self Employed 'Profit 'can be accurately assessed.

Your last sentence is exactly what I've already said. To summarise my points on here (which I thought were quite clear):

Use a bank account on your software and import the transactions that are business related rather than using a feed and having all transactions included.

When accounts are prepared from these records the balance of this bank account would not be a current asset because it is a fictitious figure.

@B2 Bookkeeper is correct because of the Business Entity concept.

If you are using the method I suggested then you wouldn't put your bank as a current asset as it's not an asset of the business, it is part of the owners personal funds being used to facilitate the business.

The ltd equivalent would be the DLA, you would put a personal bank account there wouldn't you?

 

[Scalloway]

When accounts are prepared from these records the balance of this bank account would not be a current asset because it is a fictitious figure.

Yet this is what I did when I prepared accounts for small sole traders. I just used the figures as a memo for my own purposes. HMRC do not require a Balance Sheet so it was never given to the taxpayer.

 

[Ziggy2024]

Yet this is what I did when I prepared accounts for small sole traders. I just used the figures as a memo for my own purposes. HMRC do not require a Balance Sheet so it was never given to the taxpayer.

So if you had put the balance literally anywhere else in the accounts it wouldn't have made a difference. Therefore my way of preparing the accounts would have achieved the same result for you.

Consider this. The calculated balance of the bank account at the balance sheet date is £1000, the actual amount in the bank account is £100. You have to pay your supplier £1000 at the balance sheet date (assuming accrual accounting). If you report your balance as cash at bank then the business is reporting that it has enough cash to cover it's liabilities but that's not the truth of the situation.

This is why I would not report a calculated bank balance as a current asset. I consider including the balance within drawings to show it is a personal account more accurately represents the reality of the businesses finances.

 

[Daybooks]

If you are using the method I suggested then you wouldn't put your bank as a current asset as it's not an asset of the business, it is part of the owners personal funds being used to facilitate the business.

The ltd equivalent would be the DLA, you would put a personal bank account there wouldn't you?

The business entity concept has to prevail. The accounting records are limited to those of the business and do not extend to the personal resources of its owners. The personal bank account of the sole trader is not the business account. Funds, for example salaries from another employment, paid into the personal account should not be treated as capital introduced nor should their spending at the supermarket from same account be regarded as drawings. Their personal funds are not an extension of the funds available to the business. The trader would need to make a conscious decision to introduce such funds.

Your suggested method is the same as mine namely importing business only transactions. So we don’t need a solution to a problem that does not exist.

If the trader were to draw up a balance sheet they may well determine that there is a cash balance. They may consciously left funds available from their profits to use to buy stock or further develop the business rather than taking them as drawings. It should be reported as such. @B2 Bookkeeper remains correct.

Funds introduced by the trader would be reported under the Capital section but funds introduced by a director would go to the credit of their director loan account which is not part of the capital of the business. Lastly, I wouldn’t put a director’s personal bank account anywhere in the accounts; the Business Entity concept again.

 

[Ziggy2024]

The business entity concept has to prevail. The accounting records are limited to those of the business and do not extend to the personal resources of its owners. The personal bank account of the sole trader is not the business account. Funds, for example salaries from another employment, paid into the personal account should not be treated as capital introduced nor should their spending at the supermarket from same account be regarded as drawings. Their personal funds are not an extension of the funds available to the business. The trader would need to make a conscious decision to introduce such funds.

Your suggested method is the same as mine namely importing business only transactions. So we don’t need a solution to a problem that does not exist.

If the trader were to draw up a balance sheet they may well determine that there is a cash balance. They may consciously left funds available from their profits to use to buy stock or further develop the business rather than taking them as drawings. It should be reported as such. @B2 Bookkeeper remains correct.

Funds introduced by the trader would be reported under the Capital section but funds introduced by a director would go to the credit of their director loan account which is not part of the capital of the business. Lastly, I wouldn’t put a director’s personal bank account anywhere in the accounts; the Business Entity concept again.

I'm sorry, I have no idea what you're trying to say.

My point, in response to B2 Bookkeeper and Scalloway is that showing a fictitious bank balance is incorrect and would be better shown in the capital account as it represents (correctly) the absence of a split between a personal and business bank account. If you feel differently that's fine, but I wouldn't consider that a true and fair view (the only accounting concept that matters in truth) of the business.

 

[numbersrule]

I'm sorry, I have no idea what you're trying to say.

My point, in response to B2 Bookkeeper and Scalloway is that showing a fictitious bank balance is incorrect and would be better shown in the capital account as it represents (correctly) the absence of a split between a personal and business bank account. If you feel differently that's fine, but I wouldn't consider that a true and fair view (the only accounting concept that matters in truth) of the business.

Hi again Ziggy2024,

I totally understand what you are saying, but I must disagree with you because I believe the software bank account balance would not be fictitious.

The word fictitious sounds derogatory, when in fact the balance would represent a true and fair representation of what would have been a Business Bank Account, if all the business transactions had been through a separate business account instead of being included in the personal account.

I do not dispute that a balance sheet is not required for Self Assessment but a balance sheet can often be requested for loan applications.

As I am sure you will know, on a Self Assessment there is an option for either Cash or Accrual.

 

[Ziggy2024]

Hi again Ziggy2024,

I totally understand what you are saying, but I must disagree with you because I believe the software bank account balance would not be fictitious.

The word fictitious sounds derogatory, when in fact the balance would represent a true and fair representation of what would have been a Business Bank Account, if all the business transactions had been through a separate business account instead of being included in the personal account.

Fictitious means imaginary or not genuine. What you are describing is a fictitious balance, it sounds derogatory to you because of how we are taught in bookkeeping and accounts. Nevertheless that is exactly what it is. A balance sheet with a fictitious balance on cannot, by definition, be true and fair because the balance you're reporting is not real.

I do not dispute that a balance sheet is not required for Self Assessment but a balance sheet can often be requested for loan applications.

See my example with figures above. If you prepared a balance sheet with a cash figure on it, the lender would request proof (a bank statement). Do you think they will then accept that the business can afford to pay it's debts? That would be the only reason the lender would check.

The bank account does not belong to the business and is not being used 100% for business transactions therefore it would not be accurate to show any balance relating to this account as an asset of the business. This is generally why balance sheets are not submitted along with the profit & loss for sole traders due to the inability to separate individual and business.

 

[MyAccountantOnline]

If a Sole Trader uses a single Personal Bank Account for all their Business and Personal Transactions is it possible to still use Online Accounting Software without having the bank account in the software and instead just run a Nominal Account as a 'Partial Bank Account' so that the bank feed option can be completely avoided and to ensure that all the personal transactions can be excluded?

Why would you want to do that?

 

[Daybooks]

Hi again Ziggy2024,

I totally understand what you are saying, but I must disagree with you because I believe the software bank account balance would not be fictitious.

The word fictitious sounds derogatory, when in fact the balance would represent a true and fair representation of what would have been a Business Bank Account, if all the business transactions had been through a separate business account instead of being included in the personal account.

I do not dispute that a balance sheet is not required for Self Assessment but a balance sheet can often be requested for loan applications.

As I am sure you will know, on a Self Assessment there is an option for either Cash or Accrual.

Thank you. A perfect explanation that upholds the business entity concept and so much more.
It nicely wraps up this thread for me; quod erat demonstrandum.

 

[numbersrule]

Why would you want to do that?

If you read the whole thread, I have been persuaded otherwise since the OP.

Also, everybody, please be aware that UKBF have kindly agreed to me changing identity to numbersrule.

 

[MyAccountantOnline]

If you read the whole thread, I have been persuaded otherwise since the OP.

Also, everybody, please be aware that UKBF have kindly agreed to me changing identity to numbersrule.

Excellent that's doing the job properly in my opinion.

 

[numbersrule]

Excellent that's doing the job properly in my opinion.

Thank you MyAccounrantOnline!