Repaying director's loans to the company

MaxARMaxAR Member Posts: 2

Hello! I am having trouble understanding how to handle repayments for expenses paid by Shareholders before forming the company and I am afraid that I may have already made some mistakes. This is what I've done so far.

In chart of accounts, I've created the following accounts:

  • Under Liabilities & Credit Cards / Due to You and Other Business Owners:
    Director's Loans

  • Under Equity:
    Shareholder 1 Investment / Drawings
    Shareholder 2 Investment / Drawings

To account for the initial money paid by directors I've created these transactions:

  • Loan 1
    Account: Director's Loans
    Type: Withdrawal
    Amount: £50
    Category: Shareholder 1 Investment / Drawings

  • Loan 2
    Account: Director's Loans
    Type: Withdrawal
    Amount: £150
    Category: Shareholder 2 Investment / Drawings

So now, my balance sheet shows the following:

  • Liabilities / Director's Loans
    £200.00

  • Equity / Shareholder 1 Investment / Drawings
    -£50.00

  • Equity / Shareholder 2 Investment / Drawings
    -£150.00

Is this correct so far? If so, what should I do next to repay this loans to the company?

Tagged:
edited February 3, 2020 in Accounting Technical Support

Comments

  • MaxARMaxAR Member Posts: 2

    Hi! Any chance someone could help me with this?

  • AlexLAlexL Administrator Posts: 1,533 admin

    Hey @MaxAR , sorry that we missed this post previously, it seems to have slipped through the cracks. I'm afraid we're not accountants on the support team so I wouldn't want to comment on something complex like this and give you the wrong advice. I'd highly recommend reaching out to an accountant or CPA for more info on how to handle this.

    If someone else in the community with the appropriate knowledge knows how to handle this, please feel free to do so!

  • MikegMikeg Member Posts: 648 ✭✭✭

    MaxAR,
    Instead of debiting shareholder loan you would debit the expense that the director paid for. If you want to pay the director back, in lieu of crediting Owner investment and Drawing, I would credit the loan that you set up.

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