With the system I use at present, I would pay the invoice as normal (thereby crediting the bank account) and then do a journal to Dr bank Cr DLA with the amount paid.
Another way you can do this is: Go to suppliers. click on the supplier account that the invoice is booked under. Then select 'batch credit'. When you're issuing the credit note for the invoice on that supplier account, choose Director's loan account nominal code.
Normally the journals don't touch the supplier and credit ledger but issuing a credit or a debit against the supplier/customer account does the same thing and affects the control accounts accordingly without touching the bank.
Another way you can do this is: Go to suppliers. click on the supplier account that the invoice is booked under. Then select 'batch credit'. When you're issuing the credit note for the invoice on that supplier account, choose Director's loan account nominal code.
Normally the journals don't touch the supplier and credit ledger but issuing a credit or a debit against the supplier/customer account does the same thing and affects the control accounts accordingly without touching the bank.
Hope that helps too!
Kate
If the company is VAT registered, surely that could have an effect on the VAT, depending on the software used. If on Cash Accounting it won't be recorded as a payment, and if not, care needs to be taken that the 'batch credit' doesn't cancel out the input VAT.
I think it depends on the frequency. If it's just a one off, I might use Telnkate's solution, but considering the VAT effects carefully. Or I might do a bank payment and a bank receipt to contra it, but document it clearly to show it's not a real bank transaction.
If it's likely to be regular, I might set up another Directors Loan account with the next account code, but set as a bank account. Then maybe in the next financial year stop using the old account. Again depending on the software used, and what can or can't be done with it.
Or I might just tell the director not to do it again, as it leads to all sorts of problems and will cost extra to deal with!!!
I personally would rename an unused bank account to "Bank of Director". I would pay off invoices throughout the month (or post bank payments) and then make a monthly journal to the directors account to clear this balance
I was going to pay off from the bank account and post a journal from the loan account to bank account but not sure how to deal with the vat, if I pay the full amount from the bank account ie £100 and a journal for £83.33 how do I account for the vat - am I correct in thinking the vat amount (because we can claim it back) is not deducted from the loan account?
If you have posted the invoice to the supplier account in the PL then the VAT has already been accounted for.Then pay as normal and journal as I have described above.
When you post the invoice, either via suppliers or by a bank payment, you will account for the VAT,and post the net amount to the relevant profit and loss code. Then, when doing the journals to the directors account, you would transfer the gross.
Think about it....
...if you pay £120 for a business expense, as the director of a company, you as a person have paid £120 out of your own pocket. You don't get the VAT back, the business does....
.... if I was your employer, and you had paid £120 for my business expense, would you expect me to give you £100 or £120?? If I said I could claim the VAT back (which would go into my bank account), could I still only give you £100? A director is an employee of the company.
