sole proprietorship with respect to my PERSONAL books?

[David T.]

Jumping in at the tail end of this, have you considered the information in chapter 7 of the Tutorial? Seemingly, this addresses some of the accounting questions here.

If, after looking at that chapter, you think that the information there is misleading or incomplete, I would welcome your suggestions on improving that text...


David



________________________________
 From: Maf. King <maf at chilwell.net>
To: gnucash-user at gnucash.org 
Sent: Thursday, February 14, 2013 11:16 AM
Subject: Re: sole proprietorship with respect to my PERSONAL books?
 
On Thu 14 February 13 12:19:45 Paul Elliott wrote:


Hi Paul,

IANAA, I am not in TX (or any part of the US), and it is a long time since I 
was a sole trader (before GC was created).  Comments inline below.

> 
> OK, Say it's a lawn-mowing business, when it started, all its
> accounts had $0 in them. But the business had to buy a lawnmower,
> but there was not initially any money in the business accounts
> to buy a lawnmower. So X dollars was initially moved from personal
> accounts to business accounts. Then later a check could be written
> on those business accounts to buy a lawn mower. And a separate purchase
> of gasoline on the business's debit card.
> 
> On the business's books, one side of the transaction was the business
> bank account, but the other side was "Opening Balances" under Equity.
> I get all that.


Nah, I'd record that as liability:Owner'sLoan (or similar name)

> 
> But on the personal books, the X dollars that disappeared from
> personal bank accounts to fund the business, what is the "other side"
> of that transaction? This one of my questions.

Assets:LoanToBusiness

> 
> Later, the business accounts have accumulated a great deal of money.
> Because of a lot of lawn-mowing.  More than enough to buy gas, or
> repair the lawn mower.
> 
> But the personal accounts are low and the owner wanted to take his
> girl friend out on a date. It was anticipation of this situation and
> others like it that caused the lawn mowing business to be started in
> the first place.
> 
> So Y dollars got transferred from lawn-mowing business to personal accounts.
> That way, when the owner used his personal debit card to pay for the date
> the bank did not complain.
> 
> On the books of the business, one side of the transaction was a lawn-mowing
> business bank account and the "other side" was owner draw.

If it were me, I'd get the loaned money paid back first, so on the business 
side, the transfer would be reducing Liability:Owner'sLoan first, before going 
to expenses:OwnerDraw.

> 

> 
> But on the owner's personal books, one side of the transaction was a
> personal bank account, but the other side was WHAT? This is my other
> question.


the other side of that is Assets:LoanToBusiness (reducing to zero) then 
probably something like income:drawings

> 
> All of the time that the owner was lawn-mowing, he was thinking about
> his girl friend and how the date would go. I am afraid the owners thought's
> were not very logical. But even though the owner was not logical, he
> did the transfer anyway. He said, correctly, "it is all my money".

Yes, that is true.  but what if he needs a second lawnmower and operator, and 
takes a partner?  What if he decided to sell up and go into hedge-trimming?  
What about at tax time, when keeping track of the business profit and 
liabilities is important?  It is logical to keep seperate books (and accounts) 
for the business. It is a separate entity.

What if the girlfriend needed a loan to her business to buy some equipment? 
That account would be Assets:LoanToHerBiz. and it would become her liability 
to repay you.

An asset is money that is yours, no matter who is "looking after it"  could 
be the bank, could be a friend, could be that you turned it briefly into a car 
(which you can sell and convert back to some money), or you could have it in a 
shoebox under the stairs.  Likewise, a liability is money that is not yours, 
but you are "looking after it" for some other person/organisation.



> 
> It is only the possibility of illogical dates, that kept the lawnmower
> moving.
> 
> This is a very common situation. There are many sole proprietorships.
> There must be standard answers for my questions.

I think that you have had reasonable answers so far in this thread, maybe an 
accountant would be able to advise on the nitty-gritty of your local laws and 
customs?


HTH,
Maf.



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