Owners' drawings and personal costs paid by the firm
How a consultancy records money its owners take out, and personal costs paid from the business account, so they stay out of its expenses and profit.
By Achekam · · 4 min read · For Consulting businesses in South Africa, Nigeria, Kenya
In a small consultancy, the line between the owners' money and the firm's money is often thin. The firm's card pays for a partner's flight home as well as the flight to a client. The business account covers a child's school fees one month and the partner's medical aid the next. When cash is good, the owners transfer some to themselves and call it "drawings", or "salary", or nothing at all.
None of that is unusual. What goes wrong is the bookkeeping: personal costs land in the firm's expenses, the profit looks smaller than it is, the owners' tax positions are muddled, and nobody can say how much each owner has actually taken. This article shows how to keep the two apart in Achekam.
Drawings, salary and loans are different things
The right treatment depends on how the consultancy is set up, so start there:
- Sole proprietor or partnership. The owners are not employees. Money they take out, and personal costs the business pays for them, are drawings: they reduce the owner's share of the business, not its profit.
- Company. The owners are usually directors and shareholders. Money they take is either salary through payroll, a dividend properly declared, or a loan from the company to the director. Personal costs paid by the company fall into one of those too, often the director's loan account.
Each of these is taxed differently, and the rules in South Africa, Nigeria and Kenya are not the same. Agree with your accountant which treatment applies to each kind of payment before you start recording them. The bookkeeping below works for all three; only the account names change.
An account for each owner's drawings
Each business in Achekam has its own double-entry ledger with a standard chart of accounts, and accounts can be added, renamed or switched off. Add one account per owner, in the equity or liability section as your accountant advises:
- for a partnership: Drawings, with each partner's name;
- for a company: Director's loan account, with each director's name.
One account per owner matters. A single "drawings" account for everybody tells you what the owners took together, but not what each one took, and that is the question that causes arguments between partners.
Personal payments that show up on the business bank statement
Most personal costs reach the books through the bank. Import the bank statement and match its lines. A line not yet in the books becomes a suggested journal, and a person approves it.
That approval is the moment that decides whether a personal cost ends up in your expenses. Give whoever approves bank lines a short list of what to look out for:
- school fees, household accounts and personal insurance;
- personal shopping on the business card;
- transfers to an owner's personal bank account;
- a family member's travel booked with a client trip;
- personal subscriptions, gym memberships and streaming services.
When one appears, post it to that owner's drawings or loan account, not to an expense account. When in doubt, ask the owner before approving rather than guessing.
Suggested journals for bank lines, approved by a person
Some personal costs are only spotted later, for example when a partner reviews the month's expenses and sees their own dentist's bill under staff welfare. A business can post manual journals in Achekam to move it. A journal that does not balance is refused, as is one dated in a closed month. A posted journal is corrected only by a reversal, so if a bank line was approved to the wrong account, reverse it and repost it rather than trying to edit it.
Agree a monthly routine:
- The person who approves bank lines flags anything that looks personal.
- Each owner reviews their own flagged items and confirms or explains them.
- Confirmed personal items are moved to that owner's account by journal before the month closes.
Reading each owner's position from the trial balance
The general ledger lists every posted line, and the trial balance shows each account for all time, for a period or at a date, and says whether debits equal credits. Run the trial balance at month end and each owner's account shows how much they have taken, in total and in the period. Investopedia's explanation of the trial balance covers how this listing of ledger balances is used to check that total debits equal total credits.
Management accounts show the same accounts on the balance sheet at period end, beside an income statement that is now free of personal costs. One point to explain to the partners: there is no year-end closing entry in the books, so the year's profit is not closed to retained earnings or to the partners' capital accounts and shows as its own line on the balance sheet. Your accountant will deal with that in the annual financial statements.
Starting this month
Add the owners' accounts, brief the person who approves bank lines, and go back through the last three months of bank lines for personal items that ended up as expenses. Then compare each owner's drawings with the firm's cash; why a profitable consultancy can still be short of cash explains why owners' drawings are often the first place to look. Partners who read a monthly pack, as in a monthly management pack for partners, should see drawings beside profit every month. And if you also split income by service line, seeing fee income by service line shows how.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
