You are correct with your posting detail. You can bypass the bank account and do a direct journal, if you prefer that. I do it this way because when I started bookeeping, you couldnt account for VAT via journal, and it was so much quicker.
#showingmyage
I am a little confused about your comment regards "getting the money in the company" - by posting the items you pay for separately, you are showing that you have put the money in the company and that it has created a creditor in the accounts. Once you put money into the bank account, it will be the same process as with paying expenses.
The share capital will be debit directors account, credit share capital and if you have one share of £1 it will be a £1 journal
HTH
-- Edited by FoxAccountancyServices on Wednesday 4th of September 2013 10:52:39 AM
Bank of Director is useful if you are VAT registered, as some software packages do not account for VAT if the posting is made via a journal. I use Bank of Director, for the following reasons...
For my clients posting their own records - they find this easier than dealing with journals.
For me as a bookkeeper - I can quickly see what the balance is and tell the client what they are owed. Then when they have taken the money back, I clear it down. Looking back at it makes more sense to me.
For me as an accountant - It saves me time, at the year end, when pulling together a director account summary and helps me determine what my dividend vouchers will have each month.
As stated you can use either way that suits you the most, its really a preference issue.
Whichever way you post, the money that is being lent to the company, by the director, is being accounted for, as a creditor is created on the balance sheet.
HTH
-- Edited by FoxAccountancyServices on Wednesday 4th of September 2013 12:50:56 PM
I'm starting a new Ltd company, however, as yet I do not have a bank account so I have incurred expenses on my personal account. How should I bookkeep these?
E.g. Companies House Incorporation Fee £15
I have Dr Expense £15 and Cr Business Bank £15, however my accounting sofware shows my account as being overdrawn but technically this is incorrect as I don't yet have a business account.
How to I reflect the fact that the money used was taken from a personal account to pay for a business expense? I think I'll need to show it as capital?
You can raise an invoice under your name, to account for an expense claim, when you pay yourself back
or
you can create a dummy bank account, to post personally paid items to - I like to call it "Bank of Director". Its a notional account simply use to get the transactions into the software, and can be useful if claiming VAT. Your accountant will move this balance against your directors loan account at the year end. Or you can do it, if you have a good understanding of what you are doing and the software you are using.
When you take money out of your actual bank account, just post this straight to your directors loan account (this will be a creditor code on the software).. you don't need to worry about matching it all up.. its all ends up in the same place at the end of the errand, anyway.
So...in summary Dr Expense (companies House) £15 Cr Cash 'Bank of Director' £15
I can't reconcile the 'Bank of Director' account because there's all kinds of personal stuff in there, I don't think this matters. But....can I just Dr Expense £15 and Cr Creditors Director loan £15 staight away? and miss out the previous step?
I was wondering how I can get money in the company to spend it and this would effectively be debt financing wouldn't it? I am the sole director you see.
Can you also tell me how I would account for the share holding....I have £1 in share capital and when I set the company up in companies house I said it was paid up. What does this mean as I haven't actually paid anything, so to speak?
In terms of book keeping the £1 do I just Dr Cash £1.00 and Cr Share Cap £1?
My knowledge is a little rusty....I was thinking about balancing the balance sheet when I was taking about "getting money into the company". Businesses can be financed through debt or equity but for a moment I started think about share issues etc and the more complex ways to raise finance when actually I could just use a loan.
The Bank of Director credit will be moved against Director Loan Account, which will appear in creditors. The posting made through Bank of Director will be a debit to the profit and loss account, and the profit and loss account balance, balances the Balance Sheet
As long as you post to Bank of Director, your accountant will know what to do from there. If you were thinking of doing the accounts, my advice is simply - dont. I am currently in the middle of fixing a mess that a director has made trying to do the accounts himself. Its not pretty, its not cheap, and he is pretty stressed out over it.
Oh dear...I though I was okay up until that last post.
Can I just clarify.....If I as director pay for something out of my personal account then in effect I am lending the company money.
Dr (P&L) Expense (Companies House) £15.00
Cr (BS) Director Loan (re Companies House) £15.00
I don't actually need the 'Bank of Director' (BS /CASH/ ASSET) account entry at all......i.e.
Dr (P&L) Expense (Companies House) £15.00
Cr (BS) Cash - Bank of Director (Companies House) £15.00
If I use a Bank of Director (BS ASSET) account then it will just accrue a negative o/d balance and will a require an adjustment at year end anyway. The first option would be better wouldn't it. Or am I missing something?
If I can get this right when I only have 3 transactions then it will set the tone for the rest of the reporting I do.
Thanks, I'll go with the 'Bank of Director' approach. It took a while for the penny to drop.
Because you would normally expect a bank account to have a Dr balance and reported as an asset (class room theory) the thought of reporting an asset as negative thereby changing it to a creditor (Liability) kind of went against the grain.
As I say it took a while for the penny to drop. Have I understod correctly?
Hey, no worries. Its hard to explain things without being sat next to each other and being able to point at things!! ;o)
Just so you know - If you are using software that's worth anything, it would actually report an overdrawn bank account as a creditor instead of an asset...
However, in this case, you will be clearing the overdrawn Bank of Director - via journal - and posting it to the Director Loan Account (DLA). Therefore the dummy bank account becomes NIL and Directors Loan Account is correct.
You can do the journal monthly or annually, whichever suits you best.
Any payments you made back to yourself from the actual bank account, you would do the normal CR bank, DR DLA
Thanks that helps a lot. I'm using something called Solar accounts so I'll see if it changes the debtor to a creditor. It seems fairly good in all other respects.
If you are not VAT registered then you don't do any accounting for VAT. You just post gross figures. Sales will not include VAT, and expenses, whilst they will include VAT which has been charged to you, it is not claimable, because you have to be registered to be able to claim VAT.
