What I am going to do after the 1st April - i.e on the 30th April 2020 is I will be paying the following every month.
Salary, petrol, Heating/Lighting and Dividends
Because I have found it very difficult to keep track of what I am being paid Dividends wise because of the DLA account, I will be instead be paying myself a Dividend every month not drawing on the DLA anymore. The plan is to stop using the DLA entirely.
The way it will work is to use an example of £100 a month.
£60 a month would be salary - this I would draw every month
£20 a month would be heating and lighting - this I would draw every month
£10 a month approx would be petrol. This I would draw every month, but the amount will differ slightly every month based on my mileage.
So in this particular month, I would pay myself £10 this month. Next month it might be £9.70 or £10.20 depending on how much I spend on Petrol (as this is the only factor that changes).
Ultimately I will always transfer £100 every month to my personal account.
I pay the Salary, Petrol and Heating and Lighting using payslips so this creates an entry in employee clearing account in the BS and in Salary, Business Mileage and Use of Home profit & loss accounts.
This has three advantages.
I can see how much the company allocates every year to these expenses using the Profit and Loss.
I can see how much I owe to myself the employee (if anything) by looking at the employee clearing account in BS. This should be zero if I am fully paid up.
I am keeping all transactions in the respective expense accounts in P&L and in employee clearing account. There is nothing cluttering up Journal Entries. This makes it very easy to review this expenditure annually using P&L as well as to view expenditure over the years using employee clearing account.
My question is:
Should I be allocating my dividends into employee clearing account on BS and Dividends on P&L so that I can achieve the same three advantages above. It would make sense in a way to include dividends in the employee clearing account as I am paying salary, petrol and Home Use in that account so having all the “employee expenses” together is intuitive and logical.
After talking to my accountant, I was going to create Journal entries and allocate to Dividends Payable on the BS and Dividends on the P&L, however upon reflection, I realise that this is not satisfactory as it will create a lot of entries in Journal Entries (as I will be paying the Dividends monthly now). The Journal Entries should be used sparingly for cases such as accruals etc, not for regular activity every month in my opinion. Journal Entries will have dissimilar accounts and entries added there over time, so I don’t really want loads of Dividend Payments appearing in there making it harder to go through the Journal Entries.
However, I do lose the advantage of seeing all my dividends paid over the years in the Dividends Payable BS account as it will be in the employee clearing account. Granted I could just type Dividends to filter it.
Secondly, I am not sure whether my approach meets accounting standards as Dividends are not really something that is supposed to go onto employee payslips?
I could actually go with the approach of creating one Dividend Allocation on the 31st April for the entire year using Journal Entries and pay out 1/12 every month against the Dividends Payable Account. However this approach creates a much bigger Dividend Expense in the P&L account at the beginning of the financial year distorting the first month’s profits of the Business. I am also keen to completely remove Dividend transactions from Journal Entries.
Is the payslip route the best route in my user case scenario.