How to explain money taken out of a business by a sole trader or partner

This article describes how to explain money taken out of a business by its owner (either a sole trader, partner or unincorporated landlord) as drawings.

The options listed below will only be available if your FreeAgent account is listed as a sole trader, partnership or unincorporated landlord. If you have a limited company FreeAgent account type, find out how to explain transactions using the director’s loan account.

Once the relevant bank transaction has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you will need to explain it using the appropriate ‘Type’ and ‘Category’ as detailed below.

You'll need to have level 6 access or above to your FreeAgent account to explain bank transactions. 

For information on explaining capital paid into the business, please see this article.

Navigate to the relevant transaction

Navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.

Choose the relevant bank account from the list.

Select the transaction that you would like to explain.

Select the appropriate ‘Type’ for the bank transaction

Next, select the relevant ‘Type’ for the transaction using the drop-down menu. The option you choose depends on whether or not the money is being transferred to a personal bank account that you’ve set up in FreeAgent.

Transferred to a personal bank account set up in FreeAgent

If the money is being transferred to a personal bank account that you’ve set up in FreeAgent, select ‘Transfer to Another Account’ as the transaction ‘Type’.

Select the personal bank account from the ‘Bank Account’ drop-down menu.

Select ‘Explain Transaction’ to complete the process.

If you have more than one transaction that you need to explain as a transfer to a personal bank account, tick the checkboxes to the left of the relevant transactions and select ‘Transfer to Another Account’ from the ‘Type’ drop-down menu in the panel on the right-hand side. Select the personal bank account from the ‘Bank Account’ drop-down menu and select ‘Explain [X] transactions’ to explain all the selected transactions in the same way.

For more information on explaining multiple transactions at once, please see this article.

Transferred elsewhere

If the money isn’t being transferred to a personal bank account that’s set up in FreeAgent - for example, if it’s a cash withdrawal, earnings or a transfer to a bank account that isn’t set up in FreeAgent - select ‘Money Paid to User’ as the transaction ‘Type’.

Please note that this option will only be available for business bank accounts. You won’t see this option if the bank account has been marked as personal or for a user who has been allocated the role of ‘Accountant’.

Select the relevant user from the ‘Payment to’ drop-down menu. 

Select ‘Drawings’ from the ‘Category’ drop-down menu.

Select ‘Explain Transaction’ to complete the process.

If you have more than one transaction that you need to explain as drawings to the same user, tick the checkboxes to the left of the relevant transactions and select ‘Money Paid to User’ from the ‘Type’ drop-down menu in the panel on the right-hand side.

Select the relevant user from the ‘Payment to’ drop-down menu, select ‘Drawings’ from the ‘Category’ drop-down menu and select ‘Explain [X] transactions’ to explain all the selected transactions in the same way. Remember to include an appropriate description for the selected transactions. If you leave the ‘description’ field blank, the transactions will be given the original descriptions that came through for them via the bank feed import or bank statement upload.

Regardless of which option you choose, a record of the bank transaction(s) being explained will appear in your Audit Trail report.

For information on viewing a breakdown of drawings taken out of the business, please see this article.