Breaking even

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lgarside
lgarside Registered Posts: 122 Dedicated contributor 🦉
in General accounting discussion
Hello is someone able to clarify an issue relating to breaking even for me.
With a sole trader if you were to say the accounts were breaking even would this mean that revenue is covering expenditure overheads before drawings. Or would you say breaking even is including a nominal amount for drawings?
Obviously this issue doesn't arise with companies because the salary for the directors is part of the overheads, but not sure for sole traders and partnerships!!
Any help would be greatly appreciated.

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  • Hasan.Ahmet
    Hasan.Ahmet Registered Posts: 87 Regular contributor ⭐
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    Breaking Even

    There is no hard and fast rule! not even in the Uk GAAP.
    In this instance, I suggest it depends what your client as a sole trader decides is his break even level.
  • claudialowe
    claudialowe Registered Posts: 275 Dedicated contributor 🦉
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    Surely a profit is a profit is a profit - so that is the breakeven point - and drawings don't come into the equation at all - because they don't hit the P&L.

    Claudia
  • Hasan.Ahmet
    Hasan.Ahmet Registered Posts: 87 Regular contributor ⭐
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    It is not suggested that drawings are accounted for in the P&L.
    Yet in another scenario your client may think that for him/her to continue with his enterprise he needs to be drawing from the business X amount because that is the OPPORTUNITY COST to him/her (Or else he may be doing something else with his time) AND BUILD THIS COST INTO THE BREAK EVEN COSTS.
    This may be separate issue from what conventionally is within P&L and taxation.

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