Directors Loan Account/Directors Current Account

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in AAT member discussion
Can anyone help my understanding of this area, please? I am particularly looking for a graphic 'T account' example with all the main entries that occur.

I understand the tax implications of an overdrawn account but just want to see the 'nuts and bolts' of the actual account.

Thanks

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account

    Hi

    Ive worked for two companies where the directors loan account was used for 2 different purposes.

    In the first instance, the loan account was money owed to the directors. This was an amalgamation of money due to the dirs from the incorporation of their (previous) partnership and the value of their undrawn dividends - basically rather than give them a lump when dividends were declared, the net value was applied to their loan account which they would then use bit by bit over the year. This was to assist with cash flow.

    The loan account in the company I work for now is money owed by the director. This is then offset against dvidends etc.

    Any money owed BY the director to the company will be a debit entry, when this is ettled a credit entry will take place. Any money owed TO the director will be a credit in the account, when this is paid/settled the settlement would be a debit entry.

    Hope this helps a little.

    Neil
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account

    May i offer a word of advice you only need to psot you message in ONE forum!!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account
    NeilH wrote:
    The loan account in the company I work for now is money owed by the director. This is then offset against dvidends etc.

    This is the most common I would say as most clients do really understand the implications of this, then its the accountants job to cover this by dividends and salary :)

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account

    Thanks, Neil and Dean for taking the trouble to reply. I appreciate your helpful comments. Can either of you help further, please, by showing a T account example of the the common entries, with the double entry made clear?

    Thank you very much again, Neil and Dean.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account

    Hi BlueRhapsody

    On the Dr side you would find personnal items paid for by the company or any drawings the director may have made.

    On the Cr side you would find directors salaries, dividends and any capital the director may have introduced.

    Hope this helps.

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account

    Thanks again, Dean.

    I understand what you say. Thank you. It's really helpful. And I am sorry if this is a silly question, but what is the exact double entry (can you show the accounts to be debited and credited, please?)for the items you mention, particularly the dividends and salary? The declaration doesn't always match the timing of payment, does it?

    Thank you, Dean - much appreciated!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account

    Sorry I dont quite understand what you are asking me as I have already said what the Debits and Credits are :?

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account

    Hi Blue Rhapsody
    hope this is what you were after:

    On the Dr side you would find personnal items paid for by the company or any drawings the director may have made.

    Therefore the corresponding credits will be most likely the Bank, or other place the director has drawn money from.

    On the Cr side you would find directors salaries, dividends and any capital the director may have introduced.

    Again, corresponding debits likely to be the bank account(s) or perhaps an asset account, if the director bought it straight out of own funds?
    The double entry for the dividends would be

    DR Dividends Paid
    CR DLA

    My guess is the double entry for the salaries would be
    DR Gross Wages (or whichever expense account the company uses)
    CR DLA (as opposed to Net Wages for other employees)
    When the salary got paid, it would be CR bank, DR DLA, so in this sense the DLA is being used as the directors personal wages control account.

    Hope this helps and is what you meant Dean.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Directors Loan Account/Directors Current Account

    It is exactly what I was after! Thanks faerie9, and Dean and Neil!

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