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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?

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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.

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to lionofludesch
17th Oct 2017 10:41

Correct.

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17th Oct 2017 11:19

@Jon T (OP).

To answer your question of:-

"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?",

yes indeed there ARE several such "occasions". Indeed the £3693 credit entry itself is not a "money in/money out" item, in the company's accounting records (but a credit to reflect the director's having made payments on behalf of the company).

Sometimes, where the director, for whatever reason, does not wish to receive part or all of their net Director's Remuneration, then such amount is credited to the DLA. More frequently, where the director is also a shareholder, and does not wish to receive (in hard cash) part or all of a Dividend awarded to them, then again such amount will be credited to the DLA.

As DJKL and Lion have advised, in order to satisfy yourself of the validity of the entry of £552 you should investigate the corresponding double entry (DJKL having surmised one possible reason for the entry). Such investigation will probably (albeit not certainly) allay your fears that it is a "balancing" figure only.

Good luck in the profession.

Basil.

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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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