How do other people use the Directors Loan Account - assuming that you are using a limited company?
My accountant said that it can be either a Liability or Asset and it will either be positive or negative depending on whether its an asset or liability and whether its in credit or debit. That part I understand completely.
She had however mentioned the option of setting up the Directors Loan Account as a bank account so I could use this account to spend and receive money.
If I took two scenarios that I will be using this year. I will be paying X amount in Salary to myself, so this will be bank spend and allocate to Salary. But I will also be borrowing from the Directors Loan Account and paying myself Y amount each month. At the end of the year when I declare Dividends then I will first pay off the Directors Loan Account and pay the balance in Dividends and Use of Home and Business Mileage Allowance (which will be allocated to the Directors Loan Account Monthly).
So I could setup Directors Loan as a bank account and do the following:
Current Bank Account transfer to Directors Loan Account and each month directors loan bank spend on Directors Loan Account and allocate Business Mileage and also lend money each month to director and at end of year Directors Loan Bank Receive and allocate to Dividends Account.
This would mean that I don’t have to use Journal Entries to transfer between Business Mileage, Dividends, Use of Home Accounts and the Directors Loan Account.
Or would you recommend that we go with the traditional approach (which we have done) and make Directors Loan Account an Asset/Liability and just do journal entries between DLA and Dividends etc.
I guess it boils down to which method would give more useful reporting information over time?