1. Avatar of Diana says

    Hi John, very useful lectures, thank you! Just a quick silly question: after taking large amounts of drawings and capital and the profit is fully repaid to the owner… how do we record the rest of wages/drawings if any, taking out by the owner? Is he allowed to withdraw more than he is owed?

    • Avatar of John Moffat says

      A few things.
      Firstly, anything taken by the owner is called drawings (a sole trader does not pay wages to the owner – it is drawings).
      Secondly, there is no law stopping the owner taking as much drawings as they want (there is for limited companies but not for sole traders).
      However, in practice they will not take out more that they are owed (capital plus profits) because it would mean selling all the assets and having an overdraft with the bank. The bank is not going to let them have an overdraft if the business has no assets left :-)

    • Avatar of John Moffat says

      Expenses are costs of running the business..

      Drawings are not an expense – it is money taken out of the business by the owner.

      An accrual is an expense for the period that has not yet been paid and is still owing.

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