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?

Its probably because I am not explaining what I am trying to do very well as I don’t really understand the concepts as well as I would like. I have been thinking about it, and decided that I don’t really like the idea of using the DLA as a bank account. I have stuck it in assets. As for the borrowing aspect, I will a simple example. I need £100 to live on each month to pay my mortgage and food etc. I can only pay myself a salary of say £50 a month (for tax efficiency reasons) I might get £20 this month for Business Mileage Allownace and maybe £25 next month. My accountant suggested that instead of having paying £20 this month for Business Mileage and £50 salary and then borrowing money from the Directors Loan Account to the amount of £30 for this month and then the next month paying £50 salary, £25 Business Mileage and then £25 from the Directors Loan Account - she said it would simpler to pay £50 every month for salary and allocate £50 every month to the DLA which I have paid to myself. Then I would allocate whatever I need for business mileage to that account and decrease the loan against the DLA every month! So to pay the salary, I do bank spend and salary to the tune of £50 every month. To pay myself the remaining £50, I would do bank spend and allocate to DLA account (so yes you are correct, no Journal entry here - now that I have though about it) But to pay allocate Business Mileage to the Business Mileage Expense Account and to decrease the DLA account - this would be a journal entry unless I have misunderstood something?

I agree with you and @Brucanna, I need to create a simple reference sheet for debiting and crediting accounts, because I am always making mistakes in this area - expense accounts are easy - they are debits, but I get muddled up with more complex accounts like the DLA

[image] dalacor: to allocate Business Mileage to the Business Mileage Expense Account and to decrease the DLA account You have a option that doesn’t require a separate Journal. With the Salary and monthly top up, that can be one transaction: Spend Money 100, line entries Salary 50 and DLA 50. Not knowing your exact timings so I am going to make these assumptions. The April Business Mileage is not known until May 1. You pay the May Salary/monthly top up in the first week of May, Therefore in a single transaction you could Spend Money 100 with the following line entries: Salary 50, DLA 50, BM Exp 25, DLA -25 (note the minus) so the 25’s cancel themselves out. In effect you have detailed the Journal within the Spend Money - hope that hasn’t confused you. All you have to do each month is clone that payment and make any value changes required.

I might end up doing quarterly or bi-annual transactions for business mileage. I have been doing it monthly in order to bump up my personal income, but the approach that my accoutant suggested is better for me so that I can have a set sum come in every month. So there is no longer a need to do monthly petrol mileage. It is an interesting use of spend money to handle the business mileage into DLA account. Hadn’t thought of that.

@dalacor, be careful with the mileage. If you are actually spending money (such as on petrol) and reimbursing yourself, I think all the various musings above make sense. But if you are just claiming a standard mileage allowance for tax purposes, that is different, because no money changes hands. In that case, an expense claim for the mileage makes more sense. Then, to clear the expense claim, you can go back to all the options discussed having to do with DLA, etc. A sole trader would simply clear the liability to owner’s equity. That is why some corporate entities prefer to reimburse their shareholders who are also employees in actual cash. Food for thought; there are many approaches.

You can use Capital Accounts tab to set up yourself on it. Just make sure to go to Chart of Accounts and rename Capital accounts to Directors loan account and categorize it under Assets or Liabilities. When you pay yourself from bank account, allocate funds to Directors Loan Account → Drawings. When you pay for something out of your pocket on behalf of the business, use Expense claims module. You see? There is no use for journal entries other than declaring dividends once a year.

[image] lubos: You can use Capital Accounts tab to set up yourself on it. He running a corporation, the Capital Account (tab) is the Issued Shares = Paid Up Capital. That can’t be allocated out of Equity. You generally don’t have Drawing in a corporation. One Paid up Capital account, one Directors Loan account, it can’t get any simpler then that. [image] lubos: use Expense claims module [image] lubos: You see? There is no use for journal entries And how do you get the Expense Claim account balance to the Directors Loan account - by a JOURNAL

[image] Brucanna: And how do you get the Expense Claim account balance to the Directors Loan account - by a JOURNAL If you are using capital accounts, you don’t have to balance anything. If you create general ledger account Directors Loan account, then you will need to use journal entry to contra expense claims. I know Capital accounts tab wasn’t made for corporations but it can bend to be used for that purpose. Probably not a great idea as in future I might introduce new tab called Loans which will be better place to setup director loan accounts. As technically, it is really a loan… not a capital account.

I think that I will stick to using the DLA in Assets because as you say Capital Accounts is not meant for Corporations which means that I will be using non standard accounting practices. I would prefer to do things correctly, so that its consistent and easy to understand whats going on for any accountant. Journal Entries are not really that much of a problem and I will only need to do it for Petrol Mileage say every quarter. I could do as @brucanna suggested and include the mileage in the bank spend for DLA Loan and Salary, but I think a journal entry would be cleaner in this instance as no actual money changes hands for Petrol to DLA transactions. cheers

Directors Loan Account as Asset/Liability or Bank Account

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dalacor April 10, 2016, 11:54pm 12

I am going to get lost with all these roads! Which road do I take!

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Directors Loan Account as Asset/Liability or Bank Account

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