Hi
A very simple accounting question - when a company is registered for the first time and there is £1 of share capital - what is the other side of the journal? Its only £1 so there is seldom a cash transaction related to this so it can't be bank otherwise there will be £1 reconciling ad um infinitum.
Thanks in advance for your help.
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Replies (25)
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DLA
Assuming that the shareholder is a director, debit the £1 to the director's loan/current account. If there are no other transactions on the DLA, don't forget to pay s.455 tax of 25p on the overdrawn £1.
share capital not paid
Until it starts trading, treat it as Called up share capital not paid.
Good point
"it can't be bank otherwise there will be £1 reconciling ad um infinitum."
Never enter anything to bank that doesn't relate to an actual transaction.
Although all the above suggestions work I would go for Directors Loan Account if there were to be other DLA entries in the year.
Technically it should be Called up share capital not paid until an entry is made for payment of issued shares.
Cash in hand is a practical solution but you need to deal with it properly if there's an actual petty cash float.
To sum up it's best to make a payment for the shares which avoids any problems but if it's not done choose whichever looks more sensible on the balance sheet.
If it is just £1
and you form the company for a client at a premium you could include the £1 as an item on your invoice (or I suppose whatever the capital they choose), and once they have opened a bank account you could transfer £1 in to keep things neat!
Might start doing that!
Sundry debtor
Certainly not bank. I use sundry debtors in the expectation that the shareholder will actually pay for the shares.
normally post it to sales
I normally post it to sales as the company has sold share capital. I don't include VAT, as I believe it is a zero-rated transaction.
It is not sales and it is VAT exempt actually
Sorry, Tonykelly, but your treatment is wrong on so many levels. Eg you appear to want the client to pay corporation tax on share capital.
@ Phil
Being aware of the high quality of some of Tony's posts I suspect he is being 'ironic'. Perhaps Tony could confirm this for the sake of the OP.
Tax relief actually ;-)
Sorry, Tonykelly, but your treatment is wrong on so many levels. Eg you appear to want the client to pay corporation tax on share capital.
No, get a CT deduction. Cr Share Capital, Dr Sales - which just proves it's wrong. ;-)
I will usually post the debit to DLA, as others have said
Edit: That will teach me to reply when I've had the window open for an hour - conversation has moved on and someone got there before me! :D
Sales?
How can it be sales when the entry you are posting is a debit??
i.e. Credit - share capital
Debit - ... (not sales)
I post it to the DLA as others said above.
agree with the above
it's definitely not sales. I have checked my postings on a similar job I did and I posted it to the directors loan account.
That may be OK in most cases but...
... what do you do when the shareholder is not a director?
Easy
When the shareholder is not a director then it's Called up share capital not paid.
The directors should ask the shareholder(s) for the money though.
@ Monsoon
Good point.
Presumably that makes it reportable to SOCA as deliberate tax evasion?
Share capital
Lots of answers to this important question!
I used to work for a company that had three 5p shares in issue.
The auditors ALWAYS asked where the 15p was and I took it out of my drawer to show them.
They always went away happy.
Small minds....
ALWAYS ALWAYS ALWAYS
Treat it as what it is, a debtor.
It has even been known for some people to actually pay for the share before the company is dissolved!
£1 Share Capital
I cannot believe this question ever came up. I am even more disbelieving of some of the replies!
What about £90,000?
We have a client who has came to us with this same issue but the amount is £90,000. Comfortable to include as called up share capital not paid but what is the opposite side? The three shareholders are director so presumably DLA?
No
"Comfortable to include as called up share capital not paid but what is the opposite side? The three shareholders are director so presumably DLA?"
Dr Called up share capital not paid
Cr Share capital
DLA - it can only be
Hi All,
I am an accountant for a contractor Ltd Co accounting practice and as such this is quite a common query as you find varying levels of share capital invested in the business, some start with £1 and others evidently invest quite a lot more dependant on the nature of the business.
I always credit share capital and debit the DLA, this is because that during the year there are normally sufficient transactions to cancel out the dr balance on the DLA, but if not you can ask the Director to either pay it at year end.
I would not agree with the sales nominal though, for no other reasin than it is nothing to do with sales. It is a Director's transaction.
There are certainly a variety of answers to choose from though. :)
Ant