A simple way to keep business and personal finances clearly separated is to use an Owner’s Drawings ledger code for personal expenses. Instead of recording personal spending as a business expense, transactions are coded to the drawings account, which reflects money taken out of the business by the owner. This helps maintain accurate financial statements, as it prevents overstating business expenses and ensures profit figures remain reliable. It also ensures that GST credits are not claimed in error.   Regularly tracking of drawings gives a clear picture of how much the owner is withdrawing over time, which can be useful for budgeting and tax purposes.

Account Type: Equity

Name: Owner Drawings

GST Classification: BAS Excluded

Report: Balance Sheet

If a contractor does not provide an ABN (Australian Business Number), you may be required to withhold tax from their payment under the PAYG (Pay As You Go) withholding rules. In Australia, this generally means withholding tax at the top marginal rate (currently 47%, including Medicare levy) unless an exemption applies. Before doing this, you should confirm whether the contractor is genuinely operating a business or if they are considered an employee for tax purposes. It’s also good practice to request the ABN formally and keep a record of your attempts. If the contractor claims they are exempt from quoting an ABN, they should complete a “Statement by a supplier” form to avoid withholding.

As a sole trader, you don’t technically “pay yourself wages” in the same way you would pay an employee.  Instead, any money your business earns is considered your personal income. You can transfer funds from your business account to your personal account as needed—these are called owner’s drawings, not wages.  It’s important to keep clear records of all business income and expenses as your income tax as a sole trader is calculated on your business net profit, not how much cash you withdraw as owner’s drawings.  Many sole traders set up regular transfers to mimic a salary, which should be coded to Owner’s Drawings (Equity ledger account).

Confused as to whether you should debit or credit a ledger account? Think in terms of account types:

Assets (what you own): Debit account type

Liabilities (what you owe): Credit account type

Equity (owner’s value): Credit account type

Revenue (income earned): Credit account type

Expenses (costs incurred): Debit account type

To increase the balance of a debit account type use a DEBIT entry

To increase the balance of credit account type use a CREDIT entry

On the flip side, to decrease the balance of a ledger account do the opposite!

If you are a Sole Trader and your business operates with a different name to your own, you must register the business trading name on the national Business Names Register (ASIC). It is important to ensure that your sales invoices include your ABN and a) legal name or b) registered trading name. Using an unregistered business name on invoices is a breach of the Business Names Registration Act 2011. Consequences of using unregistered business names include clients rejecting your invoices, payment delays, legal breach, ATO penalties and loss of credibility.