Small limited accounts set up????

[EJG01]

We are in the process of setting up a small limited company. A family member has loaned all the money to start the business. The Companies House info has been set up with 100 shares split between 2 directors. The directors have submitted no money bar the loan. How should this be shown in the opening balances of the accounts please? I am not sure whether we show the loan in the accounts or not? If not I guess the initial opening balance would be DEBIT cash and CREDIT share capital. However if we are going to show the loan, I am not sure what to do with the share capital side of things. So far I just have DEBIT bank and CREDIT long term loans but what about the share capital???

Any ideas, please? Thanks

[elainec100@cheapaccounting]

assuming you are paying for the share capital then:

debit bank £loan amount
credit loan £loan amount

and then

debit loan £100
credit share capital £100

[elainec100@cheapaccounting]

Yes I know I shall be repeating myself from other posts but if you struggle with that can you do all of this:

http://www.franklyaccounts.co.uk/fivefile.php

[RAL]

We are in the process of setting up a small limited company. A family member has loaned all the money to start the business. The Companies House info has been set up with 100 shares split between 2 directors. The directors have submitted no money bar the loan. How should this be shown in the opening balances of the accounts please? I am not sure whether we show the loan in the accounts or not? If not I guess the initial opening balance would be DEBIT cash and CREDIT share capital. However if we are going to show the loan, I am not sure what to do with the share capital side of things. So far I just have DEBIT bank and CREDIT long term loans but what about the share capital???

Any ideas, please? Thanks

If you do not enter loan in the accounts, then how are you going to pay the loan?

So if family member lent money to the business, either you need to show family member as a creditor or if the same amount would be repaid to the director then post it to director's loan account.

[EJG01]

assuming you are paying for the share capital then:

debit bank £loan amount
credit loan £loan amount

and then

debit loan £100
credit share capital £100

Thanks Elaine, I am not sure I understand why we would debit the loan for the share capital? Don't we need to tie up the amount on the accounts to the loan schedule, which would not show a repayment of £100? Do we just need to put in the £100?

[RAL]

Thanks Elaine, I am not sure I understand why we would debit the loan for the share capital? Don't we need to tie up the amount on the accounts to the loan schedule, which would not show a repayment of £100? Do we just need to put in the £100?


First you need to create a liability by the amount lent to the business. For example you received a loan of £5k

Debit Cash/bank £5,000
Credit Loan Account £,5000

When you pay £100 back to lender

Debit Loan Account £100
Credit Cash/Bank £100

[EJG01]

First you need to create a liability by the amount lent to the business. For example you received a loan of £5k

Debit Cash/bank £5,000
Credit Loan Account £,5000

When you pay £100 back to lender

Debit Loan Account £100
Credit Cash/Bank £100

Thanks RAL, I am ok with how we repay the loan in the accounts, I just am not sure why Elaine was suggesting creating the share capital entry by DEBITING the loan account and CREDITING share capital. Perhaps she means the Directors loan account and not the long term long account.

[RAL]

Thanks RAL, I am ok with how we repay the loan in the accounts, I just am not sure why Elaine was suggesting creating the share capital entry by DEBITING the loan account and CREDITING share capital. Perhaps she means the Directors loan account and not the long term long account.

Only explanation I can give why Elaine suggested is that your first post was not clear. You are asking two different questions and towards end of your post it is a bit confusing referring Share Capital account and loan account on the same time.:|

[elainec100@cheapaccounting]

I'm here

I thought you were doing this: loaning money to the business out of which you would pay for the share capital.

If this is not the case then ignore what I have said.

How are you paying for the £100 share capital?

[EJG01]

Hi! Well I guess the Directors will have to put the £100 in in cash. I don't think you are allowed DR balances on the Directors loan account?

[elainec100@cheapaccounting]

Hi! Well I guess the Directors will have to put the £100 in in cash. I don't think you are allowed DR balances on the Directors loan account?

It is not a debit balance on the DLA (which you can have anyway if you follow certain rules)!

It is a debit to the DLA to account for the payment of the shares.

Oh dear - my previous comment stands. Me thinks you really will struggle with the CT600 etc.

But good luck

[EJG01]

Why? Because it is a complicated set up? There must be many businesses set up with loans for funding?

[DickM]

We are in the process of setting up a small limited company. A family member has loaned all the money to start the business. The Companies House info has been set up with 100 shares split between 2 directors. The directors have submitted no money bar the loan. How should this be shown in the opening balances of the accounts please? I am not sure whether we show the loan in the accounts or not? If not I guess the initial opening balance would be DEBIT cash and CREDIT share capital. However if we are going to show the loan, I am not sure what to do with the share capital side of things. So far I just have DEBIT bank and CREDIT long term loans but what about the share capital???

Any ideas, please? Thanks

A word of advice, if you have not already set up an internet business bank a/c, then do so asap. I'm sure there are still a year's free banking offers knocking about.

You will find you are able to use your bank a/c to "book-keep" most, if not all your Co's business transactions. Then if you discover what you thought was a simple job to be DIY accountant, not so simple, you will have at least the technology to "lift" your bank debits and credits data (with transaction description), and paste them on to an excel worksheet. This should substantially mitigate the potential cost of your external accounting fees, if you finally resort to hiring a professional accountant.

Once you have your first year accounts done and dusted (also accepted/approved by Co House, Cardiff & HMRC Corp Tax accounts, via form CT600 - manual or electronically); then you may be better placed to having a shot @ your accounts & other external reports for your Co's 2nd year of trading your self. Of course, you could also have decided by then that your effort and talents are best channelled to growing the business, and leave the numbers business to the tried and trusted professionals.

Having incorporated my own Ltd Co in 2005, I'm pretty confident in saying that my advice comes with some relevant experience, plus thirty-odd years of working as a cost accountant, P&L financial analyst/forecaster, compliance auditor & commercial controller - for a leading global car, truck & tractor manufacturer/distributor. I also obtained my accounting qualification during this period.

Good luck.:)