Bank Reconciliations for Self-Employed

Self Employed is using personal bank account for business

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Hi

A self-employed trader is using his personal bank account for business. Can a bookkeeper perform a meaningful bank reconciliation and if yes then how would you approach it?

Many thanks

Replies (5)

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By mrme89
18th May 2017 10:20

Yes, you can reconcile the account. But it will be a waste of time.

You should highlight to the client that in the event of an inspection, HMRC will have the right to go through all their personal transactions as the bank account forms part of their business records.

Thanks (1)
Out of my mind
By runningmate
18th May 2017 10:23

You can either treat the bank account as the 'business' bank account and treat personal expenses as drawings (in which case you reconcile the account in the normal way), or you can review the bank statements for business income & expenditure & prepare the sole trader accounts on the basis that the sole trader has no bank account (so all business income banked is drawings and all business bank expenditure is capital introduced).
But whichever way you do it you should also advise the client to open a business bank account. Benefits are (1) less work for you & therefore lower bills from you, (2) less risk of business income & expenditure being missed resulting in inaccurate accounts, and (3) less opportunity for HMRC to ask him how much he spends on washing powder & girlfriends!
RM

Thanks (2)
Replying to runningmate:
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By AM123
18th May 2017 11:15

This is my understanding so far, apologies if incorrect.

1 - entries for treating bank account as business bank account:

CR Bank Account (BS) 200
DR Business Expenses Account (PL) 100
DR Drawings Account (BS) 100

2 - entries ignoring bank account:
- Income
CR Sales (PL) 100
DR Drawings Account (BS) 100

- Expenses
DR Business Expenses Account (PL) 100
CR Drawings Account (BS) 100 (capital introduced)

Thanks (0)
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By JimLittle
18th May 2017 12:14

I normally ask the sole trader to go through the bank statement himself. Difficult to go through bank statements and wean out business transactions

Most Sole Trader have one bank account for personal and business use. No point having a separate bank account for some sole traders where there are only 5 business transactions a month

Yes it is good practice for them to setup a business bank account but that means additional charges.

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Replying to JimLittle:
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By chatman
18th May 2017 13:51

Only if they tell the bank it's a business account.

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