Constant capital - double entry

Stan Bown

Hi

I know this is a really basic question but I just wanted a view on the most efficient way of doing it.

I buy lots of small items for business use out of my personal bank account and currently have lots and lots of CR capital and DR expense entries.

In the end this balances but I wonder whether I should be doing CR bank DR expense and showing a loss rather than increase in capital.

Is anyone else in a similar situation or can advise on how to cut down on the entries in the capital account.

I know I should probably put a chunk of cash in my business bank account but often I buy small amounts of stationery and stamps out of the personal cash in my pocket.

Thanks

Stan

Emthi

Hi Stan

There are some matters to consider,
If you had bought the items to resell you can treat them as purchases (cost of sales). And the items other than fixed assets ( stationaries, utilities etc..) can be treated as other expenses.

When you put the money from your pocket as director’s loan (capital), its going to be used in another form as expenses. But when you buy fixed assets, as you know, you have to put them in the BS. I don’t think so you have bought that much FA.

01. So the entries are simple;
When you put money out of your pocket

Dr: Bank a/c
Cr: Directors loan ( capital)

02. When you spend the money for your expenses from your bank

Dr: Expenses
Cr: Bank

Obviously this will increase your expenses as the entries are correctly posted.

Stan Bown

Thanks, Emthi

Yes, they are expenses, not assets or purchases for re-sale.

What you suggest sounds like the correct way to do it: post the capital to the bank first and then post from bank to expense account.

Regards

Stan

Monsoon

Only make a Dr Bank entry if that's what happened. Otherwise it's extra posting for posting's sake, and it isn't strictly correct.

If you really feel the need to show it in a bank account, then I'd simply set up a "Personal Bank" account in your books and record the personal payments out of that. Then at the end of the month/ year/ whatever, do a Dr bank Cr Capital/DLA to clear the balance to zero.

Only things that actually go through the business bank account should be posted to it otherwise it will be a PITA when reconciling.

Either way posting the Dr to expenses is correct.

Your postings need to reflect reality. The reality is, you have input an amount of capital into your business and this should be shown as a credit in the balance sheet.

deanshepherd

I agree with Faerie.

I tend to post my own expenses to a petty cash account which I will then either reimburse or transfer to my DLA.

Stan Bown

DLA = Director's Loan Account?

Useful advise from both, thanks.

My original intention was to reduce the number of entries to the minimum I could get away with, whilst accurately reflecting the transactions.

The difficulty of keeping up with bank transactions that hadn't happened had occured to me.