Balance sheet confusion

Current Liabilities showing Director's Loan Account withdrawals as negative value

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The director's monthly payments which he refers to as Dividends were being logged as Dividends, which had been set up as an Overhead cost - I believe that's wrong due to tax reasons etc, so my correction was to change them to Director's Loan Account Withdrawals, so that they appear the same as any other money taken by the director during the financial year (e.g. personal purchases from company bank account etc) - assumption being that the year end accounts will include a journal entry set by the accountants to allocate an amount to Dividends depending on profits.

The Chart of Accounts has been set up with Directors Loan Account Withdrawals appearing as a Current Liability.

However when viewing the current liabilities, the DLA Withdrawals is showing a negative value, and all the other current liabilities as positive values. This is then showing the total current liabilities as a negative value, which is falsley increasing the net assets. Something is obviously askew but I'm confused as to what's incorrect!

I checked the chart of accounts, and both the Directors Loan Account Withdrawals AND Additions are set up as current liabilities...

If anyone can advise I'd appreciate it. I've never set up a chart of accounts and I'm sure I'm missing something obvious... Using Sage Accounting if relevant.

Replies (6)

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By richard upshall
17th May 2018 13:59

Hi. I would assume that the amount withdrawn through the DLA means the account is overdrawn and is now a debtor to the company

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Replying to richard upshall:
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By lizochka
17th May 2018 14:26

Ah, okay so when dividends are issued at the end of the financial year, that will be then be a liability (offsetting the asset of the DLA debt), and the subsequent 'payment' of the dividends will be journalled against the DLA debt, meaning they then negate each other. Seems obvious now! Thank you! :)

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By dejaneiro2005
17th May 2018 14:05

If the director owes money to the Company,it is a liability o him, but an asset to the Company. Try moving the DLA to Current Assets on the balance sheet.

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JCACE
By jcace
17th May 2018 15:13

The payment of a dividend should be posted to a nominal ledger account for dividends, not to the DLA. You could setup a nominal account so that it gets picked up by your Sage chart of accounts near P&L tax (for example).

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By Jekyll and Hyde
18th May 2018 07:34

The book keeping system shows a monthly dividend, misposted in P & L. Why not set up a new nominal account under equity for dividends and get the client to post his dividend payments there.

I do see there being 2 issues here.

1) are those monthly payments actually dividends, on the face of it they are, so don't post them to DLA post them to dividends.

2) does the client want the bookkeeping system used as a management tool, so he/she can assess what they believe their try monthly profits are. I have a client that wants dividends included within his booking system in the P&l so when he produced his month by month P & L it is clear for him to see. MTD may change it but we are not there yet.

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By SXGuy
18th May 2018 10:34

If the dla is negitive in the liabilities then it would imply the company owes the director money.

Other liabilities would show a positive figure.

Dla would also show positive if the director owed the company money.

Reason for why the dla is negative only you would know. If it's correct.

Don't confuse dla with dividends unless your adjusting unallocated drawings at the end of the financial year.

Dividends should go straight to the balance sheet with a matching credit to the bank since its taken after profits and not a P and l expense

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