Accounting query

[David Harrison]

On Wed, 3 Nov 2004 09:42:15 +0000 (GMT), andy thomas <andy at netstat-a.net> wrote:
 
> 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)?

First, a disclaimer.  I'm in Canada so our tax laws and the generally
accepted accounting principles are different from yours, so please
find a local accountant to verify what I tell you.
 
> One way of looking at it is to regard it as a gift and not account for it
> at all.

No, these are legitimate business expenses and should be deductible
against partnership income.  The transactions should definitely be
recorded.

>  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.
> 

This will just lead to problems in the future.  I wouldn't do this. 

> 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.

This is the right way!  Set up an equity account called something like
"Partner's Contributions".  Then record the expenses paid personally
as a credit to this account and a debit to the appropriate expense
account.

If you think about it, what you've done by paying bills personally is
the same thing as if you had contributed start-up capital.  You've
just skipped a step.  If you had contributed start-up capital, you
would have credited and equity account and debited the bank account. 
The partnership then would have spent the money and credited the bank
account and debited the appropriate expense account.  The end result
of this is the same as what I suggested above.

> Are there any accountants here who might have suggstions?

Yes, but you should check with someone familiar with UK accounting and
tax to verify.

Dave