I don't use VT but, if your client is a company, then the double entry will be:
DR Use of home, CR Director's loan account
For a sole trader, the credit entry would be capital introduced.
Thanks Robert. (and Bill)
I can see how that works and have done a journal to that effect. However please can you explain to my simple mind the rationale behind it because you haven't actually introduced any extra capital.
Although this is a sole trader I am thinking with a dla there would effectively be £156 owed to the director.
-- Edited by xantia743 on Monday 16th of January 2012 04:27:11 PM
With a company, yes, you're correct - the scenario is: you would have created additional expenses (by debiting the "use of home", thereby reducing the profit) and balanced that with an additional liability to the director (which is effectively added to the directors loan account, because you've credited the DLA)
With a sole trader, you would have created additional expenses (by debiting the "use of home"), that's been incurred by the sole trader, effectively introducing extra capital, even though no money has changed hands.
If you think about it in cash terms, and imagine that the sole-trade had paid the proprietor actual cash, then it would be: Dr "use of home" Cr "Cash account". But then imagine that the sole trader has put that cash back into the business, then it would be: Dr "Cash account" Cr "Capital". If no cash actually changes hands, you could cut out the Dr/Cr "cash account" bit, and arrive at the Dr "use of home" Cr "Capital"
Um, hope that helped and hasn't actually made things worse
With a company, yes, you're correct - the scenario is: you would have created additional expenses (by debiting the "use of home", thereby reducing the profit) and balanced that with an additional liability to the director (which is effectively added to the directors loan account, because you've credited the DLA)
With a sole trader, you would have created additional expenses (by debiting the "use of home"), that's been incurred by the sole trader, effectively introducing extra capital, even though no money has changed hands.
If you think about it in cash terms, and imagine that the sole-trade had paid the proprietor actual cash, then it would be: Dr "use of home" Cr "Cash account". But then imagine that the sole trader has put that cash back into the business, then it would be: Dr "Cash account" Cr "Capital". If no cash actually changes hands, you could cut out the Dr/Cr "cash account" bit, and arrive at the Dr "use of home" Cr "Capital"
Um, hope that helped and hasn't actually made things worse
No that's fine, I understand it much better now. Many thanks for explaining it.
