MYOB/Business Partnership/ Personal Cash

[khepri]

Hi,
I am really confused just now, so if anyone can advise I'd be over the moon!

Our business is a partnership. I have MYOB Premier for our accounts and I am not sure it is correct.
When either myself or my partner spends our own cash for a company purchase, it is entered to MYOB as a Cash Purchase which is categorised as an ASSET. Yet the company bank account is also categorised as an ASSET. Our credit card used for company purchases is categorised as a LIABILITY.

How does our personal cash use get offset against our profit ? We are paying huge tax and currently just about to change our accountants as it doesn't seem right somehow.

I would love some feedback on this if possible.

And yes, I am currently looking for a new Accountant as my current one would charge me $$$$$ just to call and ask this question.

Happy Sundays at the office...

[Adam Randall]

In my experience I have found that an accountant is the wrong tool for the job here.

Well worth getting an experienced book keeper who will sort stuff the accountant does not bother with. There is a massive gap in what I have seen between what you need to know and what your accountant will expect you to know.

This is one of those areas.
Our bookeeper has just seperated our personal finances from the business finances. I now get a wage. Its the best way to set things up.

Prior to that I was putting all personal spending against "shareholder drawings" which is an asset regardless of if it came from a CC or some other way.

Business drawings even if they come from a personal credit card will go against the relevant account, so travel, office supplies, memberships etc. Its those accounts that determine what the purchase was for and not the manner in which you purchased them.

Assets & liabilities always confuse me, they always seem the wrong way round but I dont have to worry about it anymore

As far as I was aware it does not matter how the item was purchased, it matters more what the item was purchased for, if that makes any sense.

For the record, I dont think there is anything wrong with your accountant charging an arm and a leg everytime he/she has to pick up the phone, they are usually highly specialised in the area they work in and worth the money you pay them if used in the right way. Look at the money they save you over the money they cost

[khepri]

Hi Adam

Thanks for your reply.

This accounts business is very confusing especially as we have a partnership. I was used to a Company before and wish we had gone that way instead of a partnership but it now costs too much to change.

My current accountant is NOT helpful at all and I dont feel they give the advice I am paying them for.
My bookkeeper ( very experienced of many years ) suggests I check with my accountant.....aggghhh !

I am seeing a new accountant next week, got to find one that I trust has my interests at heart. This one seriously does not save me anything.

Thanks again!

[Warren Cottis]

Originally Posted by khepri

Hi,
I am really confused just now, so if anyone can advise I'd be over the moon!

Our business is a partnership. I have MYOB Premier for our accounts and I am not sure it is correct.
When either myself or my partner spends our own cash for a company purchase, it is entered to MYOB as a Cash Purchase which is categorised as an ASSET. Yet the company bank account is also categorised as an ASSET. Our credit card used for company purchases is categorised as a LIABILITY.

How does our personal cash use get offset against our profit ? We are paying huge tax and currently just about to change our accountants as it doesn't seem right somehow.

I would love some feedback on this if possible.

And yes, I am currently looking for a new Accountant as my current one would charge me $$$$$ just to call and ask this question.

Happy Sundays at the office...

Hi khepri... the accounting 'basic fundamentals' are the same whether you have a partnership or a company plus there are various reasons to start as a partnership before progressing to a company structure... but that is not for this discussion.

There are two fundamental accounting reports:

the profit & loss statement (PL)... now possibly called operating performance statement and

the balance sheet (BS)... now possibly called position statement.

There are seven terms in these reports:

the PL consists of income less expenses which shows a profit or loss (4 terms) and it covers a period of performance like a financial year... it's how your business performed over that period of time.

the BS consists of assets less liabilities to equal equity (ie. the current net value of your business & 3 terms used). Assets are what you have like money in the bank or plant & equipment... and liabilities are what you owe like debt on credit cards, loans from the bank etc.

Consequently, Equity can be a positive if your business has more (assets) than it owes (liabilities) and a negative if it owes more liabilities than it has (assets).

The BS always shows the equity position at a point in time and not over a period of time like the PL

When you use your credit card for business you are either paying an expense (ie. something that has no long life span like petrol) or buying an asset (ie. something that lasts for a long time like an office desk). You incur the debt on credit card and that is a liability (ie. something you owe)

Now... the really really important thing to understand is the interaction between the PL & the BS.

Regardless of whether you have made a profit or a loss on your PL you can see where the money went by referring to your BS.

For example, if your PL says you made a $100,000 profit from 1 July 2008 to 30 June 2009 and you say where is the money?

You only have to compare the differences in your BS as at 1/7/08 and the 30/6/09 one.

You will see that the $100,000 increased what you have (assets) by $100,000 or reduced what you owe by $100,000 (liabilities) OR a combination of both ... assets increased and liabilities decreased.

Quid pro quo... if a business is making profits it is going to have positive equity and if losses then negative.

I have a number of switched on accounting firms as clients so if you want an accountant who will improve your business let me know.. click here

[Pamlon]

Hi Khepri

The easiest way to pick cash payments in your MYOB accounts is to create three other accounts in your chart of accounts. These accounts will be 'other liability' accounts.

The accounts will look like this:-
2-6000 Loan accounts (This account acts as a header account only)
2-6001 Loan Acct - Partner A
2-6002 Loan Acct - Partner B

To then pick up cash payments your make a journal entry. For example just say you are Partner A and you paid $100 cash for a telephone bill. This is what the entry would look like:

2-6001 - Loan Acct - Partner A $100 (Credit)
2-2190 - Telephone - $100 (Debit)

Hope this helps.

Pam L
Creative Plus Business Solutions
www.creativeplus.com.au
E: info@creativeplus.com.au

[Numberz]

Hi Khepri,

A good book-keeper is invaluable but you need a good accountant for advice. If, as you say, your current accountant isn't helping your business then you're doing the right thing by changing.

As far as I was aware it does not matter how the item was purchased, it matters more what the item was purchased for

Adam is correct, a legitimate business expense or tax deduction is something that was spent or incurred to further your business with a view to achieving income or sales. How it is purchased is releveant to the Balance Sheet ie was it from business or personal cash. If the latter then the business effectively owes you the money which is why it goes to the partner loan account.

As you have a partnership (also relevant for a sole trader) you can't have a wage as it would effectively mean you are paying yourself - a company is different as you would have created a seperate legal entity. You can pay yourself a regular amount, like a wage, but this is drawings (equity section of Balance Sheet - good explanation Warren) or repayment of the partner loan.

I offer the following to try to "demystify" debits/credits and assets/liabilities:

Debit (DR) Expense* Asset~
Credit (CR) Income* Liability~

*Profit & Loss (Statement of performance/ Operating statement)
~Balance Sheet (Statement of financial position)

[sorry - tables don't seem to work here]

Example 1: Paying rent
DR Rent account (an expense)
CR Bank account (reducing an asset)

Example 2: Paying for petrol on a personal credit card
DR Motor Expenses (an expense)
CR Partners Loan / Drawings Account (equity)

Example 3: Paying a partner
DR Partners Loan / Drawings Account (equity)
CR Bank account (reducing an asset)

There are plenty of accountants out there (and on Flying Solo) who can help you, and want to, so find someone you are comfortable with. I recommend involving your book-keeper as well as they are often the person who will implement the accountants advice.

Best of luck,

[khepri]

Thank you for your informative replies. Very helpful.
On doing some more research I find that MYOB states its not really set up for partnerships, yet adjustments can be made on that. I guess its these needed adjustments I am trying to understand.
Basically, how do my partner and I enter cash for purchases ( from our pockets ) and how does that get set up in MYOB to offset against our profits.
We don't currently have Loan Categories.
We have Owners Drawings.
Cash ( Asset ) Credit Card ( Liablility ) Cheque accout ( Asset ) So I don't understand how the cash is off-set back against the drawings. Maybe I just cant get my thinking around this.

Thanks

[@HeatherSmithAU]

[QUOTE=Pamlon;11025]Hi Khepri

The easiest way to pick cash payments in your MYOB accounts is to create three other accounts in your chart of accounts. These accounts will be 'other liability' accounts.

The accounts will look like this:-
2-6000 Loan accounts (This account acts as a header account only)
2-6001 Loan Acct - Partner A
2-6002 Loan Acct - Partner B

To then pick up cash payments your make a journal entry. For example just say you are Partner A and you paid $100 cash for a telephone bill. This is what the entry would look like:

2-6001 - Loan Acct - Partner A $100 (Credit)
2-2190 - Telephone - $100 (Debit)

Hope this helps.

Pam L
QUOTE]

I agree with what Pam has said, but I think the Telephone should be considered an expense not a liability.

I work in both bookkeeper / management accounting world and specialise in explaining this sort of stuff.

It is a common problem & people do get confused.

I never touch the equity area / partnership drawings and the reason is, it could in certain circumstances change the ratio of ownership.

As Pam has explained set up loan accounts, but change their type to 'credit card'. (Yes I know they are not credit cards, it just means within MYOB they have additional features.

You have $50 in your pocket. You buy stamps for the business.

In MYOB go to Spend Money, th e account you are paying from is your loan account, the purchase is stamps.

2-6001 - Loan Acct - Partner A $50 (Credit) (increasing liabilities)
6-2180 - Stamps - $50 (Debit) (increasing expenses)

The business now owes you $50.

A positive liability loan account means the business owes you money.

A negative liability loan account means you owe the business money - rather than have a negative in the balance sheet the accountant may report this as an asset.

I am an MYOB Certified Consultant and Chartered Accountant based in Brisbane, if I can be of further assistance drop me a line :- www.aniseconsulting.com

[Numberz]

Originally Posted by khepri

Cash ( Asset ) Credit Card ( Liablility ) Cheque accout ( Asset )

I'll just add that the above MYOB accounts are for accounts (cash, bank or credit card) that belong to the business/partnership. When one or both or use uses their personal cash/card the credit is to that individuals partners Loan account.