Common Bookkeeping Errors
OWNERS DRAWINGS/DIRECTORS LOAN
When a business owner takes money from the business for personal use or puts their personal money back into the business (to repay money taken out or top up a low balance of a business account) this gets allocated to the Owners Drawings account (Sole Trader) or the Directors Loan account (Pty Ltd company). DO NOT delete these transactions from the bank account in your accounting software as this will unbalance your account and your ending bank balance will no longer match your bank statement balance.
PROCESSING WAGES TO THE OWNER OF THE BUSINESS WHEN THE ENTITY IS A SOLE TRADER ENTITY
If your business is run under a Sole Trader entity then you DO NOT need to process wages for yourself through payroll in your accounting software. Any income the business makes, as a sole trader, is YOUR income and you will pay tax on all profits of your business.
WAGES PAYABLE (LIABILITY ON BALANCE SHEET) v WAGES AND SALARIES (EXPENSE ON THE PROFIT & LOSS)
Processing a payroll in your accounting software will post an entry to the expense account as well as the liability account. Then when you pay the wages from the bank account the bank transaction gets allocated to the LIABILITY account on the Balance Sheet - clearing out the entry made by the posted payroll. This will ‘clear out’ the liability account leaving a $0.00. The balance of the LIABILITY account floats up and down and should always come back to $0.00 once payroll has been processed and paid. However when the payment gets allocated to the EXPENSE account - you leave a liability on the balance sheet and double the expense on your profit & loss report – this reduces your net profit!
SUPER PAYABLE (LIABILITY ON BALANCE SHEET) v SUPERANNUATION (EXPENSE ON THE PROFIT & LOSS)
Exactly like the information above regarding wages - processing a payroll in your accounting software will also post an entry to the super expense account, as well as the super payable liability account. Then when you pay the super (at the end of each quarter) from the bank account the bank transaction gets allocated to the LIABILITY account on the Balance Sheet - clearing out the entry made by the posted payroll. This will ‘clear out’ the liability account leaving a $0.00.