Personal Bank Account Transactions

[jameslp]

Before our business bank account was set up I used our personal bank account to pay for various materials and expenses. I am now entering these transactions into Sage. I have created a supplier invoice for the items purchased, should I now do the following...

1) Journal a DEBIT for the amount to "Petty Cash"
2) Journal a CREDIT for the same amount to "Owner's Equity"
3) Pay the invoice crediting the "Petty Cash" account

Is this recommended or should I do something different?

(I'm still a total beginner at Accounting, so please treat me like an idiot!)

 

[iridessa]

Assuming you are a sole trader (not limited company) I personally would treat this as your own personal cash introduced to the business.

I would do a simple journal between the various expense headings in the profit and loss accounts - all this side of the transaction would be a debit (expense).

Then the other side of the transaction would be a credit in the balance sheet to the cash introduced code.

You would be entitled to take cash out of the business (drawings) upto the amount you have introduced previously - this would not be liable to tax etc. as it is in effect your own personal money being repaid.

 

[David Griffiths]

Forget the journals. Simply create a DIrector's loan account as a bank account in the range 1200-1299 and pay the transactions directly from there.

That's one transaction instead of three.

When you repay the directors loan, simply transfer from bank to DLA.

There is no need to create a supplier invoice for transactions that you pay "on the day". They are meant for cases where you pay, for example, on monthly accounts.

If you create a supplier invoice for everything, you will be doubling the work on bookkeeping in most instances.

 

[jameslp]

Many thanks for your replies and advice.

David, I like that solution - thanks. Should I still name the account "Director's loan" even though the business is a partnership - is there an alternative name for it or does it not really matter?

Thanks also for tip regarding supplier payments that are made "on the day" - anything that saves additional input is great! However, it seems that if I do it that way I have no way of logging the details of the invoice (i.e. line items), although I could (and should) just enter the invoice reference number and refer to the paper copy at a later date..?

 

[David Griffiths]

Missed the bit about it being a partnership! Yes, just call it partner's loan.

If the line items are important to you, you can split a cheque payment over several lines. As long as the reference - i.e. the cheque number- is the same, Sage will add them all together so that just the total shows in the bank reconciliation.

That works against you if you have separate items on the same day - two s/os or dds for example. It will add those together as well.

 

[iridessa]

I wasn't aware a transaction like this could be entered in any way other than by journal using sage.
Now I am thinking that I could be saving a lot of time myself as I use sage quite a lot and very often use the journal option to do this kind of entry....now I'm thinking I could potentially save myself a lot of time
How else can it be entered other than by jnl...thanks?

 

[IanBrewster]

if you do set up a Partners's Loan a/c, it should identify which Partner has made the loan e.g. 'Partners Loan - Fred Bloggs'.

Makes it clear who is owed what.

 

[jameslp]

Many thanks everyone!

 

[jameslp]

Another quick question on this, if I may, related to personal car mileage expenses. Should I credit the partner's loan further until I get to the point where I've paid off the loan, the business is making money and then I'd start using the Drawings account?