Using capital accounts

I wanted to confirm that I have listed my start up funds for the business in the correct place. Every time I contributed personal funds into the business bank account (to purchase tools), I placed it in Capital Accounts. Is this where it should be?

This depends on type of your business. If you are a company, then you should actually create new liability account such as Loan - FirstName LastName and use that. This would indicate that company owes you money.

Capital accounts module is for partnerships, trusts and self-managed superannuation funds where there are more partners, beneficiaries or members.

As a sole trader, would I be better off just creating a new title under Equity called Working capital and place the “start up” funds there (that I contributed to start the business), also noting that I do not expect the funds to be returned?

Definitely assuming you dont have a company with shares, Accounting principle wise the money and assets such as tools equipment to commence the business should be entered in the capital account. Then your day to day transactions such as extra money above yr salary you take out or small private purchases (say petrol) for the business where you used yr own cash/credit card bc you didn’t have the business one with you would go in a separate equity account "current’. If you had to put extra bigger sums of cash in long term that would be in the capital not current.

On the weekend I will send you a pm with examples about your earlier post

Thanks for your reply Aussieg. So, I put money into my business bank account from my personal bank account and within the app (Manager) put it in Working capital under Equity.

I then purchased lots of various tools (hand and power tools) from the business bank account. Do I place those purchases under Assets (with their titles/accounts - Hand tools, Power tools) or under the Equity account with those names?

I also look forward to some examples on the weekend :smile:

Assets is a correct category for tools but often low value tools can be allocated to expenses. You should check with your tax accountant.

Thanks Tony for the clarification. From what I was able to find out, sanding disks, drill bits, jigsaw blades etc. go under Expenses. Hand tools that have a decent life (metal files, hammer, square etc) can be go under assets.

I know this is an old topic, but Tony is correct. From an accounting standpoint, lifespan is not the main factor when considering if purchases are an expense or an asset, value is. Most business owners that I know will set a dollar, pound, euro amount as policy. Anything above that amount is considered is an asset, anything below is an expense. This is done to minimize the number of assets in depreciation, thereby simplifying the process and not having to look up the IRS depreciation schedule for every tool, chair or coffee pot you purchase. The important part is to be consistent.