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Correct use of Director's Loan Account

Hi everyone,

I have a query on the use of DLA and correct accounting treatment. I'm newly qualified but relatively inexperienced and am seeing some year-end adjustments being put through the DLA which I find odd.

My understanding of the DLA is that it is simply the director's account to keep track of money in/out and that the respective Dr and Cr entries would reflect this.

An example of what I find odd is an explanation of a closing DLA as follows (this is the workings provided): Opening balance Cr £8,748; drawings throughout year Dr £9,602; Expenses owing: Cr £3,693; trade debtors recorded incorrectly in prior period and not reflected in bank Cr £552.

DLA closing balance: £3,391 (£8,748-£9602+£3693+£552)

So my question is two parts: Surely the last adjustment has no business in the DLA? And are there occasions or accepted practice when anything other than money in/out are acceptable to put through DLA as I can't see that it ever would? The above seems to be to simply be using the DLA as a balancing account!

Thanks in advance.

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By DJKL
16th Oct 2017 16:45

You need to look at prior year accounts to examine how debtor issue was dealt with in that year e.g was there say a debit against DLA as say monies re debtors never reached company bank and director assumed to have kept them but say this year £552 of this has been received, so director in effect overcharged?

What is other side of the £552 journal this year, what is debited, this may give you a clue?

Thanks (3)
to DJKL
16th Oct 2017 17:53

Agree - this £552 is to correct summat. You need to hear its story. Then you can decide whether it was correctly corrected or whether a further correction is needed to bring the accounts to the correct position.

Thanks (1)
to lionofludesch
17th Oct 2017 10:41

Correct.

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By Jon T
17th Oct 2017 14:51

Thanks very much everyone for taking the time to help me with this. It's greatly appreciated.

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