How to pay myself as a sole trader?

[Doug Laidlaw]

On Monday 28 April 2008 5:58:49 pm Doug Laidlaw wrote:
> Here in Australia, you would set up a Drawings account and debit the
> withdrawal to Drawings.
>
> You are entitled to withdraw all the profits of the business. 
> Theoretically, you should wait until the annual statements are prepared
> before withdrawing anything.  Drawings are on account of profits.  If it
> turns out that you didn't make enough profit to cover your drawings, your
> capital is reduced by the excess.
>
> Doug.
>
> On Saturday 26 April 2008 1:18:42 am Tom Badran wrote:
> > I'm registered as a sole trader in the uk, and up till now all my income
> > has just gone straight into my business account (which is also an account
> > under assets in my gnucash accounts).
> >
> > However i now need to transfer money from here to my personal account
> > (essentially paying myself as far as i can tell). Im not sure how best to
> > represent this in gnucash however. Should i set myself as the only
> > employee and pay myself like that, or should i set up another asset
> > account called "personal" or something and just do direct transfers from
> > business->personal every time i use money for non business transactions,
> > or something else?
> >
> > Also, with regards to national insurance (and presumably income tax when
> > i get round to doing that) i currently have that just going straight into
> > an expense account under Expenses->Taxes->NI. I presume thats the best
> > way of doing that as it was closest to the default set of business
> > accoutns gnucash sets up, but if this would be considered wrong by an
> > accountant, what would be best? I only ask as the tax is on me directly
> > rather than the business, so im not 100% how i should represent that.
> >
> > Thanks for the help
> >
> > Tom
>
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After reading the bit about debiting your Equity account -

Using a Drawings account achieves the same purpose in the end, and may be 
easier to follow.  A typical Balance Sheet would show:

Opening Capital / Equity                    $
Add profit for the year			__$_______________

Less Drawings                                   $
                                                       __________________

Capital at end of year.                     $

When you balance your books to open a new fiscal year, the profit and drawings 
are taken across to Equity, and the balance brought down.

This way, you can see immediately how much you have taken this year, instead 
of unravelling all the entries in Equity.  Whether it is justified depends on 
how many entries there are.  Many sole traders pay themselves a wage out of 
Salaries, but their accountant has to treat it as Drawings.  You can't be 
your own employee.

HTH,

Doug.