Accounting query

[Benoit Grégoire]

On Wednesday 03 November 2004 04:42 am, andy thomas wrote:
> I've been trying to resolve an accounting problem which might actually be
> quite trivial but none of the accounting or book keeping books and
> websites I've looked at make any mention of this so I thought I'd ask
> here even though it's slightly off-topic. Someone may know the answer...
>
> I set up a small UK limited liability partnership (LLP) and instead of
> putting in an initial sum of money as start-up capital (equity), I paid
> various partnership bills from both my personal funds and from another
> business. How should this be accounted for (if at all)?
>
> One way of looking at it is to regard it as a gift and not account for it
> at all.

That's inexact, and not in your best interests especially for a partnership.

> Another way is is to set a limit for these payments, say 5000 ukp, 
> and operate a separate "loan" account with an opening balance of 5000 ukp
> and debit the bills I or my other company pay from this. Accounting books
> do mention what to do with loans from partners to their partnerships but
> in this case there is no physical loan of 5000 ukp has ever been made -
> it's a sort of virtual loan.
>
> A third way is to view these payments as a debt that the partnership must
> one day repay, even though I've no intention of asking for it back as it's
> in lieu of start-up capital.

I don't see the difference between two and three.  In both case the company 
cannot carry forward a Liability it doesn't have, so it has to be repayed in 
the books.  The only do do this that might be correct is if you "repay" it 
from equity.  So your equity contribution would be to "pay" the liability the 
company has to you (yes, it sounds strange).

> Are there any accountants here who might have suggstions?

Now I NOT na accountant, but I believe this is indeed fairly common.  Assuming 
you really are paying this in lieu of capital, then each of the bills you 
paid ARE a capital contribution from you.  I'd simply write transactions for 
every bills you pay as capital_from_you -> 
appropriate_expense_account_for_bill.  The only downside is that you'll have 
many equity transactions.  To make it clearer for your accountant, just make 
a subaccount or equity for every partner. 

 
-- 
Benoit Grégoire, http://benoitg.coeus.ca/