Account is Asset if monies owed to SH and Equity if company owes SH money

[Buddha Buck]

On Fri, Mar 1, 2013 at 10:02 AM, sailorca <donald.chisholm at gmail.com> wrote:

> I hope what I am asking is clear.  Feel free to question my understanding
> of
> Shareholder Loans.
>

I question your understanding of Shareholder Loans ;-).

Loans are not Equity, they are Assets (if the funds are lent) or
Liabilities (if the funds are borrowed).

If the DACI and REFI were not shareholders, I would have expected to see
accounts something like:

CTC:Assets:Loan To DACI
CTC:Liability:Loan from REFI
CTC:Equity:Shares Outstanding

The fact that DACI and REFI own shares in CTC shouldn't change how those
loans are booked.  Imagine if the timing were different: if DACI and REFI
entered into the loans before the became shareholders:  the loan accounts
wouldn't suddenly turn into Equity accounts.  DACI doesn't become a lesser
owner, or REFI a greater owner, by entering into the loan agreements.

I would prefer to do transactions for a given shareholder under one account
> and have it appear under Assets if the shareholder owes the company and
> under Equity if the company owes the shareholder.   Is there a way to link
> the accounts this way?  Or maybe a formula moves the account from Asset to
> Equity depending on balance when the Balance Sheet report is run?


I think you need to stop thinking of
REFI-as-shareholder/DACI-as-shareholder as the same as
REFI-as-lender/DACI-as-borrower.  If the business is worth $1M, and DACI
and REFI both own 20% stakes in it, the fact that DACI has borrowed $10K,
does not mean that their equity is $10K, it's $20K, and should be reported
as such, and the $10K loan should also be reported as such.  The fact that
REFI has lent $10K does not mean their equity is $30K; it's $20K, with a
$10K loan on top.