Net Profit vs. Drawings (self employed)

mike97

Hi,

In a sole trader small business account, is it technically possible that the closing balance Net Profit amount be lower than the closing balance Drawings amount?
I’m trying to balance my book but, I’m not sure if the Net Profit is correct contrary to the Drawings that I’m sure is correct.

My net profit is calculated as below:

Sales (Total all sales)
-

---

Purchases (Trade creditor less fixed purchases)
+
Fixed assets
+
Bank fees

---

= Net profit

The drawings (All personal drawings plus Tax for year trading)

Any help would be much appreciated.

Thanks.

Mike97

beeftotheheels

mike97 wrote: »

Hi,

In a sole trader small business account, is it technically possible that the closing balance Net Profit amount be lower than the closing balance Drawings amount?
I’m trying to balance my book but, I’m not sure if the Net Profit is correct contrary to the Drawings that I’m sure is correct.

My net profit is calculated as below:

Sales (Total all sales)
-

---

Purchases (Trade creditor less fixed purchases)
+
Fixed assets
+
Bank fees

---

= Net profit

The drawings (All personal drawings plus Tax for year trading)

Any help would be much appreciated.

Thanks.

Mike97

What do you mean by fixed assets? Cost of said assets or depreciation, or even possibly (although, I assume, not likely) tax depreciation?

mike97

Fixed assets for me is not much, (tools that I've bought and I depreciate over 2 to 3 years with the vehicle too)

mari2222

Here's a simple way to calculate net profit:

Sales
- Purchases
-Expenses (include bank fees here)
__________
Net Profit

If for tax returns, you must not include as expenses (a) depreciation, (b) private expenses (or if you do include them you must show the amounts and the revenue software adds it back to net profit).

mike97

Thanks very much,

In fact I’m doing my accountancy with a software and I just file all sheets, but I’m not familiar with all this, when looking at all the figures, I was asking myself is that correct to have an Net Profit figure inferior to the Drawings figure (on the balance sheet) hence my initial question, just to know if technically this is possible. The software includes all expenses, depreciation, and private expense and does the adjustment so that all the figures are available to put on the tax return Form 11.

paul71

In short the answer is yes.

Put simply you have probably withdrawn more than your business made by taking advantage of a positive cashflow.

Consider that at the begining of your accounting period you had debtors of say €5,000 and at the end you had debtors of €3,000.

Even if you had no other transactions and did not make a profit or loss your positive cashflow would allow you to make drawings of €2,000 during the period.

mike97

Thanks, put like this it makes sense to me.