Balancing sub accounts

Hi Guys

I’m stuck on something - that I’m probably over thinking / making over complicated.

I used my visa card to pay for purchases & web hosting fees etc.
I set up a visa card in my bank accounts & have recorded these transactions via the spend money function under the Visa bank account.

This has created a debit, as expected.

When spending the money - I selected the relevant sub account e.g. bank charges

Where I’m stuck is that, I made a payment to my credit card using my personal funds My understanding is that this is Owner Investment / Capital Accounts (I renamed this from Retained Earnings) , but where I’m stuck is that if I make a payment & tag it as Owner Investment I’m left with a credit in my sub account on the summary screen under the Bank Charges account. As per the screen shot below.

Should I just create a journal entry to create a corresponding debit on the Bank Charges to bring the balance back to €0.00?

Thanks in advance!!

Somebody will be along later to tell you the correct way to do things.

I just want to point out where I think that you may be going wrong.

I don’t use credit cards in my business so I have not really thought about how to set this up. I would go to spend money and spend £10 on bank charges and select the credit card. This is what you have done. This records the expense transaction.

Now at the end of the month you want to pay down the credit card. So you would again go to bank account and select your main bank account and then do a transfer from one bank account to another. As no money is being spent as you have already recorded the expense you need to transfer the money from one bank account to another.

I am not sure what you mean by paying from your personal funds. Do you mean from your personal bank account and is there some reason why you are not using your business bank account?

If you are paying from a personal account (assuming that you are a ltd company), then you are lending the business money in which case you need to setup a directors loan account and credit the DLA account with the amount that you are lending the company and credit the Visa Credit account. You would do this by receive money in visa credit account.

Then when you are ready to pay back the personal loan you use your main business account and spend money and select the DLA Account to pay the company loan to yourself off.

I don’t have any experience with using credit cards in a company, and secondly I am not sure why you are wanting to use a personal bank account (if thats what you are doing) and thirdly, I am not that good with Director/Shareholder Loan Accounts. so you might want to check if it all works correctly for you.

Do not use the retained earnings in transactions. The retained earnings will go up and down based on transactions in the bank accounts, Director/Shareholder Loan Accounts etc.

OK - to clarify things - when you say “I used my visa card” do you mean a personal or business visa card, as this determines the rest of the process. Also, based on your renaming of the Retained Earnings account this implies that you are a Sole Trader and not a Corporation.

A) if it’s a personal Visa card, then you should be using Expense Claims (this tab needs to activated under customise). You shouldn’t be using Bank Accounts sub account as the Visa belongs to you and not the business. Your Expense Claim entry would look very similar to your Visa entry - all the expenses (debits) would be allocated to their respective accounts except the total (credit) would be allocated to Expenses Claims instead of the Visa sub account. The payment using personal funds to the Visa card is not relevant to Manager as it’s a transaction between two personal financial accounts. The Expense Claim account balance can either be repaid to you from business funds or be transferred via Journal to the Owner Investment/Capital Account.

B) if it’s a business Visa card, then you would process the transaction as you have done. The payment to the Visa card from personal funds would be - Visa sub account - Receive Money with the account allocation being - Owner Investment/Capital Account.

From your Balance Sheet screenshot it shows under Equity - Starting balance equity. This account is only listed when there is an error in your Starting Balances. This error needs to be corrected

Hi Guys

Thanks for the replies so far.

To clarify

A. I’m a sole trader

B. The first quarter of the year, I was in business set up mode. I used my own personal credit card & €1500 from my own personal savings account to get started.

C. I’m now in a position where I have cards & accounts in the business name, so this mess shouldn’t happen going forward.

Just so I have it right in my head & on the database - would it look like this now:

  1. I create an expense e.g bank charges €1000

  1. This then increases my expenses under bank charges by €1000, on the summary screen.

  2. I then create a journal entry, to show the transfer of the bank fees to the Owner Investment section.

  1. This then makes my owners equity section have a balance of -€1246, how do I get rid of this minus figure?

Thanks for your time & advice so far!

Yes - I create an expense e.g bank charges €1000
Yes - This then increases my expenses under bank charges by €1000
No - I then create a journal entry, to show the transfer of the bank fees to the Owner Investment

Why do you want to create this Journal - the bank charges belong under Expenses so why transfer them out. Your Expense Claim has some issues.

  1. It doesn’t have a Payer entered that’s why it is appearing under Equity - Suspense - 1000
  2. You need to create Payers under Settings - Expense Claim Payers
  3. Your Expense Claim will then appear under BS Liabilities - Expense Claim - 1000

  1. Your Journal would then transfer from Expense Claims to Owner Investment

Your Owner Investment negative value probably relates to the Starting balance equity account which shouldn’t be there - can you post a screenshot of Reports - Starting Balances

If I understand what you did, @CollectThatComic, you don’t yet have things quite right in your mind. (Sorry if that sounds like I’m questioning your sanity. But accounting does sometimes make us insane, doesn’t it? :wink:).

For future reference, when you have questions, it is often better to show screen shots of the Edit screen rather than the View screen so we can see the accounts you actually selected. But no need for that now.

The steps when paying a company expense from personal funds are straightforward:

  1. Since you are not using Capital Accounts, you will first need to create yourself as an expense claim payer under Settings. This establishes your individual subaccount. You do this only once. If you had a capital account, you would automatically be an expense claim payer.

  2. Enter a New Expense Claim. Select yourself as Payer. Allocate the transaction to the appropriate account. This will usually be one of your ordinary expense accounts or Billable expenses, but it could be others. In addition to debiting the transaction to the expense account (if that’s what you chose), this will credit the transaction to the Expense claims liability account, because the company owes you money.

  3. Clear the Expense claims account periodically by either of two methods:

(a) Reimburse yourself from a company bank or cash account using Spend Money. Allocate such a transaction to Expense claims and your personal subaccount. You would do exactly this same thing if an employee spent his/her own money on a company expense, such as paying for travel. OR

(b) Since you are a sole trader, you can clear Expense claims to Owner Equity / Investment using a journal entry, debiting Expense claims and crediting Owner Equity / Investment.

How often you clear Expense claims is a personal preference. I do it at the end of each month in a single transaction for everything that has accumulated. You will most likely want to do it before printing any year-end accounting reports or preparing financial statements (such as before applying for a loan) just to reduce the clutter.

Incidentally, Expense Claims are also a convenient way to enter things like personal vehicle allowances, where no money changes hands, but the expense is tax-deductible. You can also use them to prorate expenses paid from personal funds if your business is home-based (assuming your tax laws allow that).

I think this is the crux of your problems @CollectThatComic

You should not be transferring expenses out. You create the expense and you leave it there as the whole point is to record that you have spent x amount on bank charges. Whether you are paying for this personally or via business bank account is not really relevant. I think that the simplest way to handle the business/personal bank element is to “lend” the company money and then “pay” it back to your personal account at a later stage. But you keep your expenses incurred in your expense accounts - don’t transfer the out as you want to record that you have spent xyz on abc!

This is exactly what the procedure I described accomplishes. @dalacor, in a company with shareholders, whatever that might be called in a particular jurisdiction, your approach would be fine. In a partnership, it could be handled via capital accounts.

Because @CollectThatComic is a sole trader, Owner's equity substitutes for capital accounts. And since the sole trader owns it all, an easy way to handle things is simply to rename Retained earnings as Owner’s equity, which @CollectThatComic did.

So in effect, entering an expense claim and later clearing the claim to Owner's equity is exactly the same financially as contributing additional capital that is immediately paid back out for the purchase. The expense claim records an intervening liability until you can enter the clearing transaction.

Just to be clear, you can’t do this unless you are a sole trader. In any other form of organization, actual reimbursements would be involved.