DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Managing capitals


#1

Hi. We have a small business and at the beginning we need a confirmation if we doing it right or not.
I have already had a research in the forum and guides.

There is a UK based limited company which has three directors and shareholders. We contribute to the business equally.
We have got an appointment for open a business bank account on the next week, but we would like to receive our products asap so we payed the purchase order via our business paypal using Director1’s credit card.

I created the capital accounts in manager as well as the paypal account. For example:
Director1: £100
Director2: £100
Director3: £100

Paypal account: £0

Director2 and Director3 transfered all their capital contibution to Director1, and Director1 payed for the purchase order via our business paypal with his personal credit card.
According to my opinion in Manager I have to “receive money” to paypal account from this three Capital accounts and then pay the purchase order with it. Is it right?

Later we would like to increase our personal contribution. How can we do that? Is it enough to create a journey and debit the capital accounts and then receive money to the bank account from capitals?

I appreciate your help.


#2

Expenses paid on behalf of the company from personal funds should be recorded as expense claims. Members with capital accounts automatically appear as expense claim payers without the need to create them separately.

If the PayPal account is going to remain linked to Director1’s personal credit card, it should NOT be a company account.

What do you mean when you say Director2 and Director3 transferred their capital contributions to Director1? If they gave money directly to Director1, their capital accounts should be zero, because they have given no money into the company. Capital accounts should be credited only when contributions are made to the company itself.

The Receive Money function should only be used when money actually comes into the company from an outside source.

When you later make additional personal contributions of capital, you WILL use Receive Money. You will allocate the contribution to the capital accounts of the directors. You cannot use a journal entry, because all monetary transactions must be recorded under the Bank Accounts or Cash Accounts tabs. Receiving money in a bank account in this fashion is actually equivalent to debiting the bank account and crediting the capital accounts.

If you need help understanding debits/credits and capital contributions, have a look at the appropriate pages of http://www.accountingcoach.com.


#3

Thank you for the quick and really helpful reply.

What do you mean when you say Director2 and Director3 transferred their capital contributions to Director1? If they gave money directly to Director1, their capital accounts should be zero, because they have given no money into the company. Capital accounts should be credited only when contributions are made to the company itself.

Yes this is the situation.
I think I catch the info.

Just for make sure is it right?

Thank you @Tut


#4

Your example is correct for an expense claim covering purchase by Director1 of the example stock items. As you may have noticed, the expense claims show as liabilities of the company, because the company now owes Director 1 for his/her payment with personal funds.

You can reimburse Director1 if you like. This is what you would do if an employee paid expenses (such as travel). Or you can transfer the liability to Director1’s capital account with a journal entry. Financially what has happened is equivalent to Director1 contributing capital and the company immediately purchasing inventory with the money.


#5

Thank you very much @Tut. Now I can see. I also started to study accountingcoatch. It is really helpful.

Can I have one last question please? After I allocated my example in manager it I can see the £1000 under capital/director1 but it is ‘amount to pay’. Is it correct?

Also when I do a report of capitals it shows director1 and his/her contribution. Is it possible to divide this 1000 between the three directors? It is doesn’t matter but it is easier to keep it recorded in manager.

Thank you


#6

You might think of the capital account balance as the amount the company owes the director/investor. But that amount might never be paid. I would suggest thinking of it as the amount the director has invested in the company, which, if the company were to be dissolved, would be owed to the director.

Don’t show any capital contribution from the other directors unless they have actually contributed capital to the company. It sounds like they made personal payments to Director1. If that is, in fact, the case, Director1 should return their money to them and let them contribute directly to the company.

This points out the importance of keeping accurate records right from the start. Director2 and Director3 may think they’ve made contributions to the company, but they haven’t. They have actually made unsecured personal loans (or even gifts) to Director1.

I can see a couple of ways to untangle the mess. One is to record the contributions from Director2 and Director3 as having been paid into their capital accounts. Then, reimburse 2/3 of Director1’s expense claim for the inventory stock from company funds and transfer the remaining amount to his/her capital account. Since you don’t have a bank account yet, record it in a cash account.

Another way, since you expect make additional capital contributions, is to have them come only from Director2 and Director3 until all contributions are equal.


#7

Thank you very much. your answer helped a lot.