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

[davidcousens49 at gmail.com]

Gyle 
With one caveat. If the item is a capital item and its intended use is over a
period which is longer than a single accounting period it would not normally be
regarded as an expense but as a capital purchase. Most jurisdictions will have a
threshhold value where the item can be expensed immediately if below a threshold
value but is regarded as a capital purchase if above , i.e is recorded as an
asset not as an expense.

David Cousens

On Fri, 2021-12-10 at 15:18 +0000, Gyle McCollam wrote:
> 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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