I think part of the problem is that I am not explaining the scenario correctly, that or I am just not able to grasp what you are (gracefully) trying to explain to me. Try not to loose your patience with me as I make one last attempt to define my situation…
a) I have a sole proprietorship
b) I use one bank account for personal and business
c) Sometimes I pay for things, related to the business, with cash I have withdrawn from the bank, or with a personal credit card
d) When I pay for business related products and services using either of the methods explained above, I create an Expense Claim and choose myself as the Payor
e) I also withdraw money (cash) from the same bank account for personal use, but when I do this I do not make entries in Manager
f) When I have sales, and money goes into the bank, I record it (receive it) thereofre my bank balance keeps going up
g) The income and expense section of Manager is bang on, no worries there, I am simply trying to make the necessary adjustments to create an accurate balance sheet
At the moment, there two issues:
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The bank balance is too high because I have never spent any money through the Bank Accounts tab, or have never done a journal entry affecting (reducing) the bank
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There is an amount in Expense Claims on the balance sheet which is not accurate, meaning it appears as a liability when it fact it is not
Using fake numbers again, here we go:
Reported bank balance: $1,000 (i.e. what is showing in manager)
Reported expense claims: $500 (i.e. what is showing in manager)
Real bank balance: $100
The goal is get the bank balance to show $100 and the expense claims to show $0 … if this were you, how would you achieve my goal?
Initially I thought I could simply do 2 journal entries but when I realized journal entries involving the bank are not possible, I became so thrown off track, I can’t make sense of this (and believe me I am trying) … can you dumb things down for me please, I would be more grateful than you know.
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I forgot to say, I would like to do this at the end of every month (or shortly after) so that the balance sheet looks normal at any given time
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I also forgot to mention that the credit card I am using is a prepaid card which is topped up with money from the bank, which in essence is pretty much the same thing as using cash from the bank, I thought I better clarify that before someone suggests creating a bank account for the credit card (amazingly enough, I know better than to use my regular card)
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Let me explain what I did (with the help of others on this forum) and if you could confirm this is the same approach you would take, I may find peace after all
a) On bank accounts > spend money tab I created a transaction for $500 against the “expense claims” account, choosing myself as the payor, this reduced the expense claims account to zero, which is what I wanted
b) On bank accounts > spend money tab I created another transaction for $400 against the “retained earnings” account, this reduced the bank balance to $100, which is what I wanted
I guess the comments I didn’t and still don’t understand are:
a) why it is necessary to change the name of the retained earnings account to owner equity
b) what does it mean when the retained earnings account is a negative number (which mine is now after the two transactions above)