I have three accounts set up in Manager attached to the business (Sole Trader):
Income account (main).
Vat account.
Tax account.
So when I receive money for my services, it goes into the main account ‘Income’, I then debit the VAT from the Income account by transferring the amount to the Vat account. I then debit the TAX from the Income account by transfering the amount to Tax account. I do this on every invoice paid. The debits have a project ref number attached to them.
When necessary, I also then debit the ‘Income’ account an amount as ‘Salary’ to my private account. This private account is not registered in Manager as part of the business.
Therefore, my question is should I allocate the ‘Salary’ debits from the Income account as ‘Retained Earnings’ or ‘Profit Distribution’ and does it matter (I guess technically it is Retained Earnings)? This debit then shows in the ‘Capital Account’ as a debit.
Is this the right way to show an amount debited from the business as a Salary (Earnings) bearing in mind that the account where that debit goes is not registered in Manager?
First of all, amounts paid out of cash accounts are credits, not debits. See this Guide for a cursory explanation: Design a chart of accounts | Manager.
Secondly, if you are charging VAT, you should be using a tax code. Tax portions of your receipts will automatically be posted to Tax payable. Tax remittances should be posted the same place. They will automatically offset. See this Guide: Create and use tax codes | Manager. You are currently making much more work for yourself than necessary.
Third, a debit to an income account cannot also be a debit to a capital account. Debits must be matched by credits.
Finally, if you are taking money out of the company, you should use a Spend money transaction, posting it either the Drawings subaccount of your capital account or Owner’s equity, depending on how your chart of accounts is set up.
I guess I thought I should duplicate exactly my actual bank accounts with those in Manager, but clearly thats not necessary. My accounts should be very simple as I am a sole trader selling architectural services, so I have pretty simple invoices and easily trackable expenses.
What’s the best way to go about changing my current set up to the one recommended for a simple sole trader situation? Or should I start a new business and once complete delete this one?
I think this depends on how extensive your records are. I notice from your profile you’ve been a forum member for 2-1/2 years. That implies potentially extensive records and a hard slog changing everything. But your explanation of past procedures also suggests you’ve been using tax codes in ways not intended. That suggests starting a fresh accounting file, carrying forward the old balances.
If you do start over, do not delete your old file unless you plan to completely recreate all past entries with new procedures. However flawed, those are your records and you may need them for audits, etc.
I persevered with my current flawed system for 2017. But I have set up a new business from the start of 2018 using the sole trader accounting method and I backed up the old business up til 2018.
My needs are very simple in accounting terms (i believe). I am and achitect who provides services under the banner of “Professional fees” and produce invoices based on the agreed fee and have a business account for that. My only other financial transactions are expenses.
So far I have not used the" Journal entry" method but simply spend and received money for that account.
My question is, will using the “Journal Entry” method help my very simple needs more than what i am doing now. If not, can I just delete the “Journal Entry” button without affecting anything else in the system.
Just for clarity of terminology and accounting purposes, is VAT a form of TAX and therefore described as a TAX, hense TAX Payable showing the VAT charged?
I don’t know what you mean by “Journal entry” method. If you are referring to using journal entries as a way of recording bank transactions, you can’t. While in classical accounting anything can be done with journal entries, modern systems often limit you to reduce the possibilities of errors and the need to discern by yourself which accounts to debit and credit. In Manager, all transactions involving movement of money into or out of the business happen through the Bank Transactions or Cash Transactions tabs.
See answer above. Journal entries in Manager are used for relatively few things.
No. You cannot delete the Journal Entries tab, no matter what you do. The possibility that you will never need it is remote.
Yes.
Since you are performing only professional services, make sure you have read this Guide: Manager Guides.
