Sole Traders Journals at end of financial year

[whiteleyl]

Hi,

I am a bit confused and wondered if anyone could clarify if this is correct what I am doing in Sage.

We are a Sole Trader and I use nominal code 3050 for drawings (wages) and all I have been doing is a Bank payment to this code 3050 every month. Now it is the end of year I want to clear this code balance down to 0.00 for the new financial year. I have journalled the balance to the capital code 3000 so it clears the 3050. I have done CR 3050 & DR 3000. When looking around the internet it is saying that the capital code should reduce but in fact mine is increasing and I am not sure if this is correct.

On my trial balance my 3050 & 3000 codes are both in debit before and after my journal, does this sound correct.

Another code I use is 2210 for the Income Tax and NI payments. When this is due I again do a Bank payment to 2210 when due so this is showing as a debit on code 2210 again I wanted to journel this so that the balance is 0.00 again for the new financial year. I am unsure which code this should go to with it being a Sole Trader is it the Capital code again which is 3000.

Hoping someone has the knowledge of the regarding Sole Traders.

Thanks

 

[Ziggy2024]

Your capital account should ideally be a credit. It will be the sum of monies introduced, monies drawn and the profit of the company.

2210 is the PAYE control (for if you have employees), your own personal tax payments just need to go drawings.

What version of SAGE are you using? IIRC you can set the codes to roll up on year end so you don't need to manually journal them.

 

[whiteleyl]

I am using Sage 50 accounts.

So are you saying I should just do the bank payment to code 3050 (drawings) I would like to see the drawings (wages) by itself and the income tax by itself too, so could I just create another code in the 3*** range for the income tax.

Do it sound right that at the end of the financial year I do the journal Cr 3050 and Dr 3000.

Regarding the Dr balance on the capital code on the trial balance we didnt put much money in at the start of the business, the only drawings which has been taken out of it is the (wages) once a month so if I have done the journal above correct it is always going to increase the debit. Am I missing something here? Doesn't the profit from the financial year just get journalled automatically to profit and loss account when year end is run. I use code 3200 for profit/loss.

 

[Ziggy2024]

I am using Sage 50 accounts.

So are you saying I should just do the bank payment to code 3050 (drawings) I would like to see the drawings (wages) by itself and the income tax by itself too, so could I just create another code in the 3*** range for the income tax.

Do it sound right that at the end of the financial year I do the journal Cr 3050 and Dr 3000.

Regarding the Dr balance on the capital code on the trial balance we didnt put much money in at the start of the business, the only drawings which has been taken out of it is the (wages) once a month so if I have done the journal above correct it is always going to increase the debit. Am I missing something here? Doesn't the profit from the financial year just get journalled automatically to profit and loss account when year end is run. I use code 3200 for profit/loss.

Yes the journal is correct, although I would do it at the beginning of the next year rather than the end of the current year (so the drawings shows in your reports) & I would journal it to p&l (3200) so there is only 1 capital account.

 

[numbersrule]

You are using 3050 for Drawings and 3050 is within Sage 50's code range for Capital, which increases with a CR because Capital is a Liability for the business as it is monies owed to the Business Owner i.e. Equity.
When you pay Drawings out of the Bank Account that is DR 3050 CR Bank. So the DR to the 3050 Drawings reduces the balance, making the end of year Negative or as you say, 'in Debit'.

Moving Drawings to 3000, which is another Capital Code, would reduce the Capital (Credit Balance). ( as you would expect because that would be a way of recording the reduction in Capital as a result of you taking the Drawings ).

But your comment that the 3000 & 3050 accounts were in debit both before and after your journal requires further enquiry. Is this because your 3000 Capital Account was already overdrawn at the beginning of the year? And therefore the Drawings DR to Capital 3000 has increased the negative balance? And is this because your 3050 Drawings was also showing an opening balance as negative, so that after you have Credited this year's Drawings, you are left with the opening balance in 3050.

Like Ziggy has said, there are advantages in having just one Capital Account to record Funds Introduced, Profit for the Year Credited across and Drawings taken out.

Regarding your other query about Tax & NI, and 2210, do you mind if I ask how many staff are on Payroll?
You say ' we are a Sole Trader' so sounds like you have employees? 2210 should not be Credited to Capital. Sounds like you have been doing DR 2210 PAYE Liability CR Bank. The missing piece of the Jigsaw may be you should have been doing Payroll Journals, which would have included :

DR Staff Wages Expense
DR Employers NICs
CR 2210

But the above is only applicable if you do indeed have employees.