Company loan

George

I'm just wondering about the accounting treatment of this. A company currently has been reduced to no transacations, other than the sole director paying off a company loan creditor with monthly payments from the profits of another sole trader business of which he is the proprietor. He is trying to pay off the small debt of the company but doesn't want it struck off, while he is developing his now thriving sole trader business.

Is this simple or am I not seeing trouble ahead? Thanks for your help.

George

Poodle

Hi George

If the payments are being made directly by the director then the journal entries would be

Debit - Company loan creditor

Credit - Directors loan account

For each payment made.The director is in-effect lending the money to the company and becoming the creditor himself.

Poodle

George

Thanks very much, Poodle. I appreciate your reply. I don't know why, it might be a general gut feeling about some directors and how they are so laid back. I needed to be sure that it was a legitimate thing to do, and that I wasn't missing anything. I much prefer sole traders!

George