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• # 100442
• Mon 30 Jun 2014 04:35 PM

Hi everyone

I am just seeking a bit of advice.... I have a new client who has a joint business bank account with two other people that he shares premises with and they each put in an equal amount each week to cover rent, insurance, utilities etc, but then he banks the rest of his takings into his personal bank account.  All purchases for his section of the business are made from the personal account.

Obviously with it being his personal bank account, he is also using the money to pay for his own personal rent, food, utilities etc but for my own sanitys sake I just want to double check with everyone (as so far all my clients have had a seperate business bank account) anything that he spends out of his personal account will be classed as drawings... is that correct?  So as far as record keeping is concerned I simply debit the bank with his sales income, credit it with his purchases and also credit it with his drawings (aka personal spending) and do the double entry for these also obviously.  Someone please correct me if I'm wrong...

• Jennifer

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• # 100446
• Mon 30 Jun 2014 06:32 PM

Jennifer

As far as I understand, banks all say that personal accounts must be used only for personal transactions. We are in breach of their small-print if we use a personal account for business transactions. Banks appear to have turned a blind eye to this practice so some businesses use their personal account for business transactions.

However I received a letter from my personal bank (Co-op) reminding me of the rules. I don't know why they sent this - but it may be that they are not going to turn a blind eye any more. If that is so, then all banks may start doing the same in future.

I think I would encourage this client to use a business account - and pay his share of the rent from this account. He could pay it into the joint account. But this system sounds odd - almost like a partnership just for this single purpose - but it's beyond me to say if this is dodgy or not.

Apart from that, your accounting seems correct to me.

Peter

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• # 100448
• Mon 30 Jun 2014 07:24 PM

Thank you for your response Peter. I try to encourage all my clients to have a business bank account but some take more persuading than others unfortunately. I think unless banks put stricter enforcements in place some sole traders are going to continue to use their personal accounts. The only reason there is a joint account between the three of them is because they don't get billed individually for rent and utilities, therefore it is just easier to put their share into this account and pay it as a single payment. It isn't an actual partnership because all three people who work there are sole traders (and I only do the books for one of them). They basically just rent the space.

• Jennifer

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• # 100449
• Mon 30 Jun 2014 07:37 PM

Hi Jennifer

If your client is 'allowing' you to have full access to his personal bank accounts, and you're reconciling them, then yes - all private transactions would be put to drawings. If there is any other income that is not from the business, i.e. a partner's earnings from employment etc, then this too needs to be clearly seen as personal transactions.

If the personal transactions are in excess of the business transactions, then I would suggest not reconciling the statements as it would be more time consuming than is reasonable. If this is the case, you can just enter all income and expenses as told/shown to you by the owner - if income and expenses are missed, then the reason for this has to fall with the owner for not having a separate business account.

Carol

• Carol Saunders
  Lady of Ledger Book Keeping
  Telford, Shropshire

  
  

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• # 100450
• Mon 30 Jun 2014 07:47 PM

Hi Carol

I am currently following this thread with interest and note your point about not reconciling the accounts. If this were the case and you didnt reconcile the accounts because personal transactions outweighed the business transactions how would you then deal with the balance sheet (run from a report in Sage) where say for instance the bank a/c value shows a monetary figure in excess of the actual figure?

Many thanks

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• # 100452
• Mon 30 Jun 2014 08:12 PM

Thanks for your input Carol... The personal account is used by him only, not his partner. I guess one of my concerns was if I didn't reconcile his account and post his personal transactions as drawings then the accounts just wouldn't make any sense because he would still be using the sales income to pay for personal transactions but it wouldn't be recorded anywhere therefore the actual net profit showing on my balance sheets would be wrong due to the figures not taking any drawings into account (am I making sense or is it past my bedtime?)

• Jennifer

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• # 100453
• Mon 30 Jun 2014 08:18 PM

Hi Rebecca

As you wouldn't be reconciling the bank, there would be no bank 'balance' to reconcile to, so there would be no bank account on the balance sheet.

What I do in cases such as this is to have an account in the software (I'm a QuickBooks user) which I call 'operating account'. I direct all the income and all the expense to this account. This account does not get reconciled and means nothing. It will show on the balance sheet as it would be set up in the same way a 'bank' account would be set up, but basically, if you have to do bookkeeping in this way, a balance sheet is of very little use.

The bookkeeping, when done in this way, is predominately being carried out as an income and expense task and will produce accurate profit and loss reports - but not full accounts as in balance sheet as well.

It's not ideal, but then neither is business transactios being mixed in with personal transactions in a bank account!

I hope this clarifies it better.

Carol

• Carol Saunders
  Lady of Ledger Book Keeping
  Telford, Shropshire

  
  

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• # 100455
• Mon 30 Jun 2014 08:25 PM

I think you might have just answered my question there Carol..... To clarify, I can just put all his sales income into my system, take off the expenses from that and just leave it at that? He would then be taxed on the remainder at year end? At least that way it would reduce the input time dealing with reconciling the personal transactions too.... Is that right?

• Jennifer

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• # 100456
• Mon 30 Jun 2014 08:39 PM

Hi Jennifer

Yes that's right - all the income and expenses (cost of sales and overheads) get recorded into the accounts the normal way, thereby producing the profit and loss accurately. 

Asset and Liability accounts can still be set up and recorded and therefore show on the balance sheet - it's just that the bank account will not be accurate, but then any balance, whether positive or negative, can be zeroed off via a journal to the clients capital account at year end (or periodically / monthly etc) if a more readable balance sheet is required.

It's a bit of a 'dirty' way of doing it - but then so is a mixed bank account! Sometimes clients give us no choice.

Hope that helps.

Carol

• Carol Saunders
  Lady of Ledger Book Keeping
  Telford, Shropshire

  
  

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• # 100457
• Mon 30 Jun 2014 08:41 PM

.....and yes - the 'bottom line' of the profit and loss is what he would be taxed on........Carol

• Carol Saunders
  Lady of Ledger Book Keeping
  Telford, Shropshire

  
  

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• # 100458
• Mon 30 Jun 2014 08:42 PM

Thanks Carol, very helpful indeed :) I think I was just confusing myself as this is my first sole trader and the first time I have come across someone without a business account.

• Jennifer

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