Morning,
A director of a small limited company wants to lend his company the money to meet a regular bil (committed to for at least 10 years)l. The company will be paying this bill monthly for the next few years and the director wants to pay the money into the company as though the entire amount is transferred to the company today. He will however be foregoing salary for the next few years until the loan is completed. Accrual or amortisation or just plain wrong?
KFK
Replies (9)
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Do you mean that the director will loan the company monthly, but he wants it to be shown as if it was paid in one go at the beginning?
Put it all in now
Credit the director's loan account with the money he intends to pay in full. Then debit the director's loan with the amount he has committed to pay in the future but has not yet done so. Job done.
?
It's not clear if the payments to the 3rd party are in settlement of a liability that exists now (e.g repaying a loan), or settling a recurring bill (e.g rent repayments on a 10 year lease)
If the latter then isn't it:
The director pays a big lump sum into the company: Cr DLA Dr bank
The company pays the recurring payment to the 3rd party Cr Bank Dr P&L
The director draws loan repayment from profit instead of salary Cr Bank Dr DLA
That's a no from me then
Is this because he wants to show a big expense in hes s/e business perhaps (an accrual of what though)? Or offset the liability in the ltd co to improve the b/s (but for every debit there is a credit, so this won't work?
I think you know he is barking up a wrong tree here.
but...
So you want to create a liability for the individual to pay the company a regular sum of money over a period, so there is a liability in the individual's books, and an asset in the company (the benefit of future cash flows). What is the double entry for that asset in the company's books?
The alternative is that you recognise the debt to the individual whenever he makes a payment on the co's behalf, and settle by repaying him when the co can afford it
In short I don't think you can create a larger DLA than the amount that the D has actually L'd
Like I said
So you want to create a liability for the individual to pay the company a regular sum of money over a period, so there is a liability in the individual's books, and an asset in the company (the benefit of future cash flows). What is the double entry for that asset in the company's books?
The alternative is that you recognise the debt to the individual whenever he makes a payment on the co's behalf, and settle by repaying him when the co can afford it
In short I don't think you can create a larger DLA than the amount that the D has actually L'd
The double entry for this adjustment has both entries in the DLA therefore it's no entry at all.
Every debit has a credit
So you want to create a liability for the individual to pay the company a regular sum of money over a period, so there is a liability in the individual's books, and an asset in the company (the benefit of future cash flows). What is the double entry for that asset in the company's books?
The alternative is that you recognise the debt to the individual whenever he makes a payment on the co's behalf, and settle by repaying him when the co can afford it
In short I don't think you can create a larger DLA than the amount that the D has actually L'd
The double entry for this adjustment has both entries in the DLA therefore it's no entry at all.
Or, if not both posted to DLA then as a variant and throwing all logic aside, the borrowing entity posts:
Dr Cash actually received
Dr Debtor for cash still to be received
Cr Loan for full amount.
Strikes me as a nonsense akin to recognising a bank overdraft in one's books with reference to the facility limit rather than the amount drawn!
The only time I can recall seeing anything similar was when HP agreements were sometimes posted:
Dr Asset
Dr Debtor re future HP charges
Cr Total HP liability (inc charges)