Sole Trader Equity and Development Costs

[zara90m]

Hi all,

Apologies as I imagine this has been posted before but I tried to run a search and nothing that answered my question seemed to come up.

I have started a jewellery e-comm business and having been paying for everything out of my personal account. I don't have a lump sum to inject into the business so expenses are just being paid for as and when they arise.

Equity

Currently I account for equity just as a balancing figure i.e. my assets less my liabilities. I don't do separate double entries for it. E.g. if I use £30 to pay for my Shopify monthly bill etc. my implied double entries are this:

DR cash 30
CR equity (automatically as my assets increased) 30

CR cash 30
DR expense 30

But then my equity reduces by 30 again because I spent that cash. So I'm a bit confused because the double entries don't make sense to me.

Overall my BS is net nil and my expenses are up 30.

Would anyone be able to give step by step advise on double entries/walk me through an example like this?

Development costs

I have read in various places that you can't capitalise development costs. I spent a fair bit of money making the products to sell. Is this true that you can't capitalise as it's not very clear when you'll reap the benefits?

Thank you

 

[Scalloway]

The second entry is

Dr Stock on hand
Cr Cash

Then your Balance sheet is

Assets
Stock.................£30

Equity
Capital..............£30

Then when you sell it

Dr Cost of Goods Sold
Cr Stock

Dr Cash
Cr Sales

 

[zara90m]

The second entry is

Dr Stock on hand
Cr Cash

Then your Balance sheet is

Assets
Stock.................£30

Equity
Capital..............£30

Then when you sell it

Dr Cost of Goods Sold
Cr Stock

Dr Cash
Cr Sales

Hi Scalloway,

Thank you very much for your response. What if it's not stock that I am paying for. Just a generic expense that won't be sitting on the balance sheet as inventory like my monthly bill for my shopify website?

 

[zara90m]

I suppose in a better format, I'm asking what am I missing here when I pay an expense (assume this is the first thing I ever bought for my business):

DR Cash 100
CR Paid-in capital 100

CR Cash 100
DR Expense 100

After this, my balance sheet looks like this:

BS
Assets 0
Liabilities 0
Equity 100
--> Which does not balance

 

[zara90m]

I believe I've answered it just incase anyone else was struggling!

DR Cash 100
CR Paid-in capital 100

CR Cash 100
DR Expense 100

BS
Assets 0
Liabilities 0
Equity 0
- Paid-in capital 100
- Profit/(loss) for yr -100
- Drawings 0