Director using business account for personal use?

Director salaries transferred from one business account to another and using that for personal use.

Didn't find your answer?

Hi My name is Rashad. I am an ACCA qualified accountant residing in the U.A.E. I am currently facing an issue. I need to account for some expenses.

There are two seperate accounts for XY company. The partner in the company has used the business account like his own personal account. The account is under the company's name. The account, however, does not have any transactions apart from the ones made by the director so it is like his own account but legally it is under the company's name.

He transferred the wages he received from the first business account to the one he used like his personal account. Now, let me state this, all the funds that came in to this account were the wages he received from the actual business account. From there on, he used the expenses for his own private use (like any normal individual would in a personal account). After all those expenses, there isn't any money left in the account. (he received the wages and spent all of it which is fine).

The issue obviously is now that the company wants to close down and is facing an audit, it might flag this up that the partner used the company account for private expenses and could come under scrutiny.

Do we account for this as owner's equity as a direct transfer from the business account to the other account and deduct all the expenses through owner's equity and tally up the total and balance it off. As much as I understand, this is the way to account for it.

The wages were a direct transfer from the business account to the other account so we have the trace of documents.

Any help would be kindly appreciated.

Regards,
Rashad

Replies (6)

Please login or register to join the discussion.

By johngroganjga
01st Jun 2017 10:48

What was the double entry for the wages - all you say is that the company transferred a cash sum equal to the wages from one bank account to another? There must be another credit entry somewhere. Is there a creditor balance representing the unpaid wages? If so, just debit the personal payments out of the company bank account against that balance - job done.

Thanks (0)
avatar
By rashad2294
01st Jun 2017 11:25

The double entry is wages debit 140,000. Credit was the unpaid salaries of 140,000 he was due. so that matches off which is fine.

Now the 140,000 was then transferred and then personal expenses incurred(we take the net figure for payment). which again is alright in a normal scenario.

However, my question what is the legal standing of personal expenses being incurred under owner's equity in a business account rather than a personal account. Because he is entitled to do what he wants with that 140k but auditors might raise a red flag.

So can I just name it as owner's equity and match all the expenses to that 140k and close out the double entry

Thanks (0)
Replying to rashad2294:
By johngroganjga
01st Jun 2017 12:24

As I said you just debit the personal payments against the credit balance in respect of the unpaid wages. Not sure why that is not obvious.

Where are the payments sitting now?

When you have done that everything will be in perfect harmony and there will be nothing for the auditors to raise a red flag about.

Thanks (0)
avatar
By Matrix
01st Jun 2017 11:29

If it were a U.K. Company then I would just book the entries to the Director Loan Account.

Thanks (0)
avatar
By rashad2294
01st Jun 2017 11:37

That is one more issue. The U.A.E. does not have any explicit rules. The accounting standards are not really up to date here.

I guess I could quote the IFRS and U.K. law and use it as it is accepted worldwide.

Thanks (0)
avatar
By rashad2294
01st Jun 2017 12:37

I was confused about how the auditors might look at it since I do not have that much experience. So I do follow what i initially thought. Match the payments off with the unpaid wages and there shouldn't be anything to worry about.

Everyone in this forum is really experienced and qualified so I wanted to be sure before making a call on this.

Thanks for all your help.

Thanks (0)