Learn self-employed bookkeeping by doing it

A sole trader and the business are one person. The records still have to show the business money on its own.

The simplest record is a list with one line for each amount that comes into the business or goes out of it. Each line has a date, what it was for, a type, and the amount in an Income column or an Expense column.

Two things never go in those columns. Money you take out for yourself is drawings, not a business cost. Money you put in from your own pocket is capital, not business income.

Tansy Garden Care is a one person gardening business. This is its record for one month, kept on the cash basis: each line counts on the day the money moved.

Profit for the month is £1,435.00 less £327.00, which is £1,108.00.

In the same month the owner moved £950.00 to a personal account. That is drawings. It is noted, and it stays out of the Expense column. Put there by mistake, it would cut the profit to £158.00, and the record would be wrong by £950.00.

• Keep business money apart from your own, and tell drawings and capital from expenses and income.
• Keep a simple income and expenses record, with a type on every cost.
• Keep the proof: copies of invoices, receipts and bills, bank statements and a mileage log.
• Work out the same month on the cash basis and on the accruals basis.
• Write an invoice, work out when it is due, and record the money when it arrives.
• Chase a late payment in steps, and record a deposit or a part payment.
• Decide whether a cost was for the business, and split one that is partly private.
• Tell equipment from a running cost.
• Total a year of income, expenses by type and profit, ready for the tax return.

The path follows the order the work comes in: set the records up, get paid, record what is spent, then total the year.

1. Getting set up. Keeping business and personal money apart, the records to keep, the cash basis and the accruals basis, a simple income and expenses record, and receipts.
2. Getting paid. Writing an invoice, payment terms, recording money received, chasing a late payment, and deposits and part payments.
3. Business expenses. What counts as a business expense, costs that are part business and part private, mileage, equipment against running costs, and working from home.
4. Self Assessment, step by step. What Self Assessment is, the tax year, totalling the year's income and expenses, payments on account, setting money aside, drawings, and working with an accountant.

There are two ways to decide when income and costs count.

Cash basis

income counts on the day the money arrives, and a cost counts on the day you pay it

Accruals basis

income counts on the date of your invoice, and a cost counts on the date of the bill, paid or not

Both reach the same total in the end. They differ in which month or year a figure lands in.

The basis changes the entry. On the accruals basis an invoice is recorded when it is sent, as money the customer owes, and the payment only clears it. On the cash basis nothing is recorded until the money arrives.

A deposit shows the difference. On the accruals basis it is not income until the work is done, so it is recorded as a liability. On the cash basis it counts as income on the day it arrives.

Tax rates and allowances, the limits that decide who must register or keep digital records, the flat rates for mileage and for working from home, the rule on which basis you may use, and the dates for returns and payments are set by HMRC, and they change. None of them is given here. The current ones are on GOV.UK.

A question in a room gives any rate it needs, as an example for that question. Ledger Drill is practice in how the record and the sum work. It is not tax advice.

• Putting drawings in the Expense column. Drawings are not a business expense, and they do not reduce the profit. A sole trader does not pay themself a wage.
• Counting money you paid in as income. Savings you pay into the business are capital.
• Running the business through a mixed bank account. A business cost is easy to miss, and a private cost can be counted by mistake.
• Recording the whole of a shared bill. Only the business share is a cost. If the business account paid all of it, the private share is drawings.
• Using a flat rate for each business mile and recording the fuel as well. The flat rate stands in for the running costs of the car.
• Recording equipment as a running cost. The expenses are then too high and the profit looks lower than it is.
• Keeping the card slip and not the itemised receipt. A slip that shows only the total does not say what was bought.
• Leaving cash out. Cash in your hand is income just like a bank transfer. Record it the day you get it.
• Expense types that do not add back to the total. If they come to more, a cost has been counted twice. If they come to less, a cost has been missed.

Ledger Drill teaches a sole trader's records through questions, with no videos. A task shows a bank statement, a record or an invoice for one invented business, then asks you to work on it.

• Sort a month of payments into business costs and private ones.
• Type the totals and the profit of an income and expenses record.
• Find the one line of a record that does not match its receipt.
• Type a due date, or what is still owed after a part payment.
• Put the steps of chasing a late payment in order.

Every answer is marked at once, with the working behind it.

The modules and rooms are listed below, in order. A room that costs nothing carries a Free tag.