Directors of limited company getting weekly, on top of their wages, fixed sum of money. They are using this money for cash purchases for the business. The reason is that the business is seasonal and there is not always enough cash flow to cover the business cash purchases. They call this directors loan. Can anyone confirm if this would be classified as directors loan?
I am using cloud accounting software, what would be name of the account in the Charts of Accounts?
So the business gives them money each week, which they then use to buy things for the business, have I understood that correctly? If so that is repayment of expenses, you could create an expense account for each director and log the money paid out and the receipts that they give back to the business and then the two should cancel each other out. Although life would be simpler if the business just bought them directly.
If they are buying things on behalf of the business and the business is NOT paying them back, then I would look at the timescales involved, if it's a month or so it could still be run through an expense account, if it is a long term situation then I would call that the director loaning the 'money' to the business.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
yes the business pays money each week to each director to buy things for the business. It is a hotel so they may buy anything from food, bulbs, toilet paper, petrol. None of the purchases are for resale just for everyday run of the business. I get the receipts but they do not keep track if they have money over or are out of pocket.
My lecturer suggested to create account for each director in the 3000 series to act as capital account.
I think I will create the Expense account like you suggested. Thank you.
It definitely needs tracking to see what the balance is, any extra money that is paid to them would need to be dealt with. It sounds like a very messy way to deal with business costs to me, I would suggest that the way they are running the business and their accounts needs an overhaul by someone.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Yes moving forward definitely but right now I still have to deal with what been done.
Looking back as well. Or the year will not reflect what has happened. Get some help from their Accountant now, will save fees at year end when they have to plough through the mess.
Directors of limited company getting weekly, on top of their wages, fixed sum of money. They are using this money for cash purchases for the business. The reason is that the business is seasonal and there is not always enough cash flow to cover the business cash purchases. They call this directors loan. Can anyone confirm if this would be classified as directors loan?
Hi Hana
Just to state the obvious here but if the Company can afford to pay the Directors the extra amount on top of their wages why can't the Company pay for the cash purchases?
But yes I would put it through the DLA
EDITED to include can't
-- Edited by Artois on Sunday 11th of April 2021 12:17:21 PM
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Thanks guys but I was really just asking if this is a directors loan.
You're looking for a simple answer to a can of worms question unfortunately. The closest explanation you're going to get is my answer from 22 Mar I think, but this whole situation is clearly very messy and I don't think that it is as simple as just coming up with a category. It makes no sense that the company would give the directors the money instead of just paying for things itself the majority of the year. It reminds me of a hotel client I once had actually which in the end I dumped because it was a MLR nightmare.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Problem you have is you have only covered basic level 2 of AAT so right hand doesnt yet know what the left hand needs to do. You are doing them a great disservice by carrying on without really knowing what you are doing. Get their accountant involved, dont wait until year end. Mind you you could just leave it, I for one love getting clients like this as I can charge more for sorting out their messs.
Thank you guys for all the good points. I am just trying to help out business that is struggling in this climate and gain experience in the process. Yes I only just covered the basics level 2 AAT and you may say I may do more harm then good to the business but I am threading very carefully and that's why I come here, for advice and wise words. I double check everything, research it and cross reference it. The final product will indeed be assessed by the accountant, I am just getting ready the books.
-- Edited by Hana26 on Saturday 17th of April 2021 06:39:16 AM
If it's any consolation Hana, I was given a copy of Sage in 2006 and told, you're doing the bookkeeping from now on. I took to it like a duck to water and the external Accountant never queried my work. My only previous knowledge was a Bookkeeping Course I took in 1977-78 and look at me today - just as clueless lol.
Seriously, if there is an Accountant involved by all means run it past them to ensure they're happy with how you're doing it, but the short answer is yes, it goes to Directors loans. Good advice was offered by the others as well so take that on board, as it does sound a bit messy the way the Director's are doing it. On the bright side, more work and more dosh for you.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
