Dividends - where should they be classified? And Director's Loan/Current Account Balances
I was brought up with the ancient "Profit and Loss and Appropriation" Accounts format of:
Net Profit - Before Tax
Less: Corporation Tax
Net Profit - After Tax
Add: Profit and Loss Account - Balance Brought forward
Less: Dividends Paid
Profit and Loss Account - Balance Carried Forward
All of these were on the "first" page of the Accounts - not the Balance Sheet
I appreciate that the normal Journal Entries for voting ought to be:
Debit: Dividends (a new account - but where?) on the Profit & Loss Account
Credit: Director's Current Account (a Balance Sheet item)
Therefore, where should one set up the Dividends (voted) in the Debit side as Quick Books presentation on the Balance Sheet as Retained Earninings does not sit comfortably with my interpretation of the English language.
Secondly how about the Director's Loan/Current Account - I see that earlier years' categories are still being brought forward on the Balance Sheet, rather than being "netted off" every year. Any offers of solutions, please?
[PS as a GoodEnglish Professor, I have proof-read this before pressing the submit button]
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Dividends and Loan Accounts
I put director loan accounts in the other current liabilities section. QuickBooks treats all balance sheet accounts on a cumulative basis as there is no annual close-off procedure as in Sage, but there again should not the director's loan account be a running total in any event? The advantage is that you have more flexibility for reporting for a date range.
I have the dividends paid as an equity account so the retained earnings and net profit for the period are earnings after tax but before dividends which the clients seem to understand better - we use professional software for the preparation of statutory accounts so we are not using quickbooks to fulfil that function - rather just for the client to use for recording the transactions and hopefully for management purposes. We put the corporation tax charge as an other expense so that you can easily identify the profit or loss before tax.