I have tried to use the search engines to find why it is done, but could not find a good explanation.
Could someone please explain why accountants equalise Directors Current Accounts/ Directors Loan Accounts?
I assume that in the simplest case the accounts of directors "mirror" specific transactions from the Business Bank Account, reflecting the money movement between the company and the individual (dividends, salary, expenses, etc.).
But why would an accountant or their customer want to equalise the amounts in the accounts of two directors?
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I've never done this so I couldn't say.
I have, however, assumed that a joint husband-and-wife account is owned equally, which I think is an entirely reasonable assumption to make.
Could someone please explain why accountants equalise Directors Current Accounts/ Directors Loan Accounts?
If you think that doing this is the norm, it certainly isn’t. It may be done from time to time as an exception, and that will be where the directors themselves want it to be done. It’s not a matter of accounting policy. The only logical reason I can think of for doing it is where two directors live together, and the debits to their accounts principally comprise joint expenses.
Never done it
BUT husband and wife sometimes joint
Joint not two separate identical
Is this just what your accountant does, but nobody else does?
I had a married couple keeping separate.
Changed their mind when husband went £30K overdrawn and I calculated the s455 tax payable.
Most of the separate ones I deal with have wife making the choice
If you get a moment to spare, could you please explain what you mean by "overdrawn"?
Director owes the company money instead of the other way round.
Similar to an overdrawn bank account where the customer owes the bank money instead of the other way round.
Got one client. Elderly father, two adult children.
FAther runs the business. Kids have no involvement.
DLAs regularly all over the show. On at least one occassion, father has said 'Daughter loans to Son' to avoid S455.
Neither daughter nor son have any clue this happens.
I suppose it doesn't (or at least it might not), but this gentlemen is a very very important client of ours.
If he wants something doing, then its done. So of course, if at the year end set of accounts (December) then the final meeting might be April. At December, Son was a debtor of £50k. Daughter a £100k creditor.
Dad just says, "Daughter loans to son." and we book CR Son DLA £50k and DR Daughter DLA £50k, at December year end. We have a Deloreon DMC12 you see.
((Put simply, it's the usual example of firms bending the rules to do what important client wants))
One year, daughter was overdrawn, and son not. This year he tried, "But family overall is NOT in a debit position." (ie, in the round we're in credit). To our credit, the partner replied with, "That's not possible. Does Son want to loan to daughter?" ((ie, Dad wanted us to just ignore the S455 tax completely and NOT adjust the loan accounts))
That’s not bending the rules - it’s breaking them.
But, other than to avoid disclosure, there’s no need to backdate the offset - why not do it correctly and book it at current date, ie before the 9-month deadline?
WHY?
it might be done to hide an overdrawn directors account, with need to pay tax and disclose on companies house.
What do you actually mean by "Equalising"? I have often advised client companies that equal shareholders should equalise the directors' current accounts except where interest is charged. Otherwise there is unfairness. So the one with the higher amount (assuming credit balances) would withdraw a sum to bring his balance down to that of the other. The same with partners' capital accounts.