I have recently taken over the books for a small company....which are in quite a mess. The previous bookkeeper has set the director's expenses up as if they were suppliers, which ordinarily wouldn't be an issue as I would just pay the "supplier" then proceed to pay expenses through the nominal ledger directly from the bank as they arose.
This is where it gets confusing.... one of the directors was using his personal credit card to pay bills....unfortunately this is showing an overdrawn balance as although the company was paying this balance on his behalf, he also put some personal expenses through it. The director has asked that I offset his business expenses in "suppliers" against the overdrawn credit card account....
Personally, I'd set up a directors loan account bank account in the software, then I'd net everything off against that (as in clear down all the expense supplier accounts that had been set up, any payments to reimburse the expenses, and the personal credit card expenditure). If the amount of the personal expenses (that were paid by the company via the credit card) were greater than the business expenses incurred, it may end up being an overdrawn directors loan account. Then going forward, post directors business expenses as credits to the directors loan account; and any personal expenses paid by the company would be debited to the DLA. (although I'd also try and educate the director to not have the company pay off his personal credit card bill.)
Having said that, there is more than one way to skin a cat... I suppose you could pay off the expense suppliers to the extent of the personal expenditure on the credit card, but if they didn't exactly match, you'd have under/overpayments on one or more of the expense suppliers. But it would be rather messy and it would be hard to keep track of the director's overall position.
If I set up a directors loan "bank account" to pay the expenses shown as a creditor, then surely that will be left as overdrawn as well as the credit card? Basically he has £1500.00 worth of expenses he needs to claim, and the credit card is showing as £1400.00 overdrawn....which are his personal expenses on it.
By paying his expenses using another bank account won't I in effect be showing a net of £2900.00 O/D? When in actual fact he is asking me to show that the company only owes him £100.00... or am I just being a little blonde here its late....sorry
Ah, I misunderstood, I thought the previous bookkeeper had set up supplier accounts for each of the places/shops etc... where the director had incurred expenses. (did think that was strange, lol)
So, if he has one supplier account for himself but also a credit card account set up in the software, I'd choose which one I wanted to use and I'd clear the other one down, so it's all in the one place.
But, yes, if overall, he is overdrawn in reality , then it would show as overdrawn in the accounts somewhere, whatever you do.
(That said, if there is £1500 of expense showing in the director's supplier account as owing, and there is also a £1400 overdrawn (debit) balance on the directors credit card account, if you pay £1400 of the supplier account off from the credit card account, then you would be left with £100 owing to the directors supplier account and the credit card account would be be zero.)
(Edit: to correct grammar)
-- Edited by Figurate on Monday 26th of November 2012 09:06:58 AM
I understand completely what you are saying, however, If i pay the expenses from the credit card, I will be left £2900 credit balance on the credit card account... at the moment I have 2 credit balances in effect :( this is why I am having problems...
The director is owed £1500.00 in business expenses....which has be set up as a supplier account, and the credit card has a balance of £1400.00 credit. He is asking me to not pay his expenses of £1500.00 , but to use these expenses he is owed as a contra against the outstanding credit card bill.....I have 2 credits and no debit... if that makes sense (oh and by the way, thank you for trying to help :) )
I need to show the expenses in the accounts as obviously they are legitimate business expenses, otherwise I could just reverse the entries....arrghhh!!! What a mess!!
Also had to reconcile 7 months worth of bank statements for 2 bank accounts....enter 3 months of purchase ledger and sales ledger, and the previous bookkeeper only left a month ago :(
Is this the scenario: You have a directors credit card bill of £2900 of which £1500 is business expenses and £1400 of it is personal expenditure and the company has paid all £2900 of it?
If so, this is what should happen:
(There are two main ways, depending on whether you use the Directors supplier account or not, but the overall net effect is the same)
Method 1 (without using the directors supplier account):
Cr Business Bank account (£2900) which is the business paying the entire credit card bill Dr Credit Card account £2900 (In most software this would be a bank transfer from business bank account to credit card account)
Then to account for the business expenses element:
Cr Credit Card (£1500) Dr Various Expense Codes £1500 with all the different expense types (such as travel, subsistence, hotels etc)
OR Method 2 (using the directors supplier account, which personally I wouldnt bother with):
Cr Business Bank account (£2900) which is the business paying the entire credit card bill Dr Credit Card account £1400 which is the business paying the personal expenditure on the credit card (in most software, this would be a bank transfer transaction from business bank account to credit card account) Dr Supplier account £1500 which is the business paying the business expenditure (this step would effectively be paying the supplier account from the bank account)
Then to account for the actual business expenses element:
Cr Supplier Account (£1500) Dr Various Expense Codes £1500 with all the different expense types (such as travel, subsistence, hotels etc)
The net effect of both methods (in this hypothetical example) is:
Youve credited the business bank account £2900 as a result of paying the entire credit card bill.
You will have a £1400 debit balance on the credit card account, thats the amount that the director will owe the company for paying for his personal expenditure.
The director supplier account will be nil.
(Obviously, if youve already got brought forward balances on the credit card and/or supplier account, then the final figures will be different, but thats the overall logic, which hopefully you will be able to adapt to your circumstances)
Please help.....
its late....sorry
