Undeclared Loan

Mart
Mart Registered Posts: 2
in General accounting discussion
HI
I recently took over a client, Ltd company, and I have come to prepare this years accounts and discovered there is a loan to the company which has not been picked up in the accounts prepared by the previous accountant.
the loan was from the director's brother for £10,000, and received 3 years ago, but has not been shown in the accounts. the options on receipt is it was either considered sales or was off set against the directors loan account, we suspect it was considered sales as it came in from a business account without the brother name on it.

as the loan is now due for repayment, how do I now show this in the accounts? do I need to adjust previous accounts? best suggestions on how to deal with this would be appreciated

Thanks

Comments

  • MarieNoelle
    MarieNoelle Registered, Moderator Posts: 1,368
    I would look at any formal documentation relating to the loan to first establish whether the loan was to the company or to the director.
    You would also need to ascertain whether it was treated as a receipt of income or an entry in the director's loan account. Can the previous accountants help?
  • Mart
    Mart Registered Posts: 2
    Unfortunately, we couldn't get anything from the previous accountant, and no formal paperwork! there was also a personal loan to the director, which we have not included, but this one was specific to the company and should have come in as a loan.
    The monthly payments back to my client's brother have started, can you tell me what journal entries I need to make to to get the loan into the accounts, and would you suggest that they draw up the loan agreement at this stage to support the repayments?
    thanks
  • MarieNoelle
    MarieNoelle Registered, Moderator Posts: 1,368
    I understand it's difficult without the help of the former accountant - however are there any clues that would indicate the payment has been entered as a sales receipt? If so would it have been entered as Misc Income or against a debtor? Is £10,000 a material amount for the company - surely if the director needed a £10,000 loan he would have remembered such amount being paid in the accounts?
    If it has been incorrectly recorded as sales than the correcting entry would be DR Sales CR Loan - however if it was credited against a debtor maybe look at an unexplained credit there?

    Also do they just repay the loan or are there any interests attached to this loan?

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