Accounting query

[John Sowden]

Another 'not an accountant' from the US:

there are two ways to get funds into the business.  As an investment, via an 
equity account (already explained clearly by someone else), and by a loan via 
a loan (liability) account.  The difference is: with equity you are expected 
to be able to share in the profits (and losses) of the business, whereas with 
a loan, your funds are secured by a note with specific terms of repayment, 
with interest.  The note can put repayment to you before those of unsecured 
debtors (internet service, phone service, etc.), but below wages, taxes and 
prior notes.   You have to decide what your relationship is with the LLP and 
act accordingly.  The dbits and credits are just bean counting  : )

john




On Wednesday 03 November 2004 03:57, Benoit Grégoire wrote:
> 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.

-- 
John Sowden
American Sentry Systems. Inc.
1221 Andersen Drive
San Rafael, CA  94901

U.L. Listed Central Station Alarm Service
Serving the San Francisco Bay Area Since 1967

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