[GNC] Directors loan - do I need an expense account?

[Gyle McCollam]

This is a lot different than your first explanation.  Under these circumstances where you sold the company electronic equipment, it is indeed just an expense.  On the company's books, it is the same as if the company had bought the equipment from any other vendor and would in no way be a "director's loan".  Treat it like any other expense on the company's books.


Thank You,
Gyle McCollam

Gyle McCollam

609.680.2326                     Mobile

gmccollam at live.com<mailto:gmccollam at gyleshomes.com>           email

________________________________
From: gnucash-user <gnucash-user-bounces+gylemc=gmail.com at gnucash.org> on behalf of Dr. David Kirkby <drkirkby at kirkbymicrowave.co.uk>
Sent: Friday, December 10, 2021 8:13 AM
Cc: gnucash-user at lists.gnucash.org <gnucash-user at lists.gnucash.org>
Subject: Re: [GNC] Directors loan - do I need an expense account?

On Fri, 10 Dec 2021 at 05:14, Adrien Monteleone <
adrien.monteleone at lusfiber.net> wrote:

> With the usual caveat that this is not formal advice, I agree with
> Michael. This looks like what we call "Owner's Equity" in my parts.
>
> If this is just for you, then my personal advice is keep it simple.
>
> Keep it in Equity.
>
> You can put the original 'loan' into "Owner's Equity", and any money
> taken out (or paid back) *from/by* the company can be in "Owner's Draw".
> (which should be a child of Owner's Equity so the parent results in a
> net amount at a glance.)
>
> If the Owner returns some of the Draw, that would simply be a reversing
> type transaction in the Draw account, or an increase in their main
> Equity account. (though I suppose you could track it in a separate child
> account still if you wanted, but unnecessary as a report can handle that
> detail.)
>
> An Accounting textbook would most probably advise that none of this
> involves expenses or revenue. (unless you start introducing 'interest
> paid' in either direction.)
>
> Equity is already understood to be a 'liability' of a special type — to
> the owner(s). It usually is *not* recorded as normal liabilities,
> because those are usually short term (less than one year) or long term,
> but Equity is essentially on indefinite terms.
>
> Regards,
> Adrien
>

The more I think about this, and look at our government's website about
director loans

https://www.gov.uk/directors-loans

I believe I *might *be right in saying the following.

1) My accountant is using the term* "directors loan"* rather loosely to me,
but the way he is recording the transactions to HMRC is accurate.
2) Me confusing you guys, but saying it's a* directors loan*, whereas in
fact, it does *not *meet the definition of a director loan from
https://www.gov.uk/directors-loans

The original source of this "debt/liability/expense" or whatever you want
to call it, was *not *me paying money into the company. Instead I sold the
company some expensive electronic test equipment, and other items at a fair
market value, The market value was determined by looking at the selling
prices on eBay. A record was kept of some eBay auctions, so if it was ever
queried, I have proof the amount it was sold to the company for was fair.
An *invoice *was provided by me personally to the company.

I personally paid $16,000 for one of the items a year or more before
setting  up the company, but it was sold to the company for less, as it
would have depreciated in that time. So from when the company started
trading, it had everything it needed. No cash was actually needed.

That being the case, I think it's probably right to consider this an *expense
*- it is not much different from if the equipment was purchased from a test
equipment dealer, although they would typically want repaying within 30
days, whereas my invoice did not state when it had to be repaid by. Since
setting up the company, I've sold some other items to the company at a fair
market value.

When I look on the company's balance sheet, there is section

* Creditors: Amount falling due within one year

My accountant is computing the "Creditors: Amount falling due within one
year" by including the money the company owes to me personally. It's not
recorded in another section of the balance sheet, which is "Shareholders
funds".

So if I'm not mistaken, I'm simply a creditor. The company just owes me
money for goods I have supplied, but not been paid for. Therefore this
should be recorded as an expense. Does the above seem logical?

If so, in GnuCash, I should probably have an account

Expenses -> Test Equipment.

and record the transactions under that. But given historically I've had a
"directors loan" tab in Excel, I might as well just continue with that.

I realise many on here are not accountants, and those that are accountants
are not going to want to be held responsible for their comments, but does
the above seem reasonably logical?

Dave
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