Balance Sheet Query

[cjcass]

Hi,

I'm detailing accounts for the first year of trading (2016-17) as a Ltd company for submission to HMRC. Prior to trading I spent £20,000 to get it off the ground (Director's loan). The first year saw revenue of £38,000 with operating costs of £10,000. I'm planning to recover £10,000 of the Director's loan (50%) in Year1 and pay myself £8,000 in salary giving total costs of £28,000 and a resulting profit of £10,000. Taking 20% tax off the profit leaves me £8,000 to draw as dividends with £0 retained profit.

My question is regarding the balance sheet...

Moving down the balance sheet I have £1,500 of fixed assets (office equip), £0 current assets, £0 current liabilities and then I'm confused as to what the rest looks like (long term liabilities and capital & reserves) - where does the additional £10,000 owed on the Director's loan sit and how does it all balance? I also have 1 ordinary share at £1 unpaid which I think needs to be incorporated somewhere.

Can anyone please shed any light on this for me?

Many thanks.

 

[Scalloway]

Repaying your director's loan is not a tax deductible cost. The correct way to do is to introduce all your personal expenditure into the company accounts as costs with the opposite side of the transaction being the director's loan in the balance sheet. Repaying director's loan reduces the liability on the balance sheet.

 

[cjcass]

Many thanks for your response, understand your comments but am not an accountant (as you've probably already guessed!). So, my balance sheet is looking like this...

Fixed assets = £1,500
Current assets = £0
Current liabilities = £0
Net current assets = £0
Total assets less current liabilities = £1,500
Long term liabilities = (£10,000) *the rest of the Director's loan
Net assets = (£8,500)
Capital & reserves
Called up share capital = £?
Profit & loss account = £?

I'm struggling with the Capital & reserves bit as I believe that should equal (ie. balance) the Net assets of (£8,500)?

 

[STDFR33]

Are you operating a PAYE scheme so that you can pay a salary?

 

[cjcass]

Yes I will be, am just in the process of registering the business for PAYE

 

[Scalloway]

This is my attempt to summarise the entries

Dr Costs .............£20,000
Cr Directors Loan £20,000

Dr Bank £38,000
Cr Sales £38,000

Dr running costs £10,000
Dr Assets .............£1.500
Cr Bank..................£11,500

If you are only repaying the director's loan and paying the salary now they can't go into 2016/17.

 

[cjcass]

re. the salary HMRC advised that it could reconcile back to 2016/17 (unless I misinterpreted that). I have already physically paid myself the £10,000 from the Director's loan from the revenue. I don't follow your figures above in terms of the balance sheet headers, I'm obviously missing something as I'm new to it!

 

[Scalloway]

Further Entries needed

Dr Directors loan £10,000
Cr Bank.................£10,000

Dr Salary..............£8,000
Cr Directors loan £8,000

Dr tax charge £4,000
CR Creditors £4,000

(20% of £38,000 less £18,000)

Gives a balance sheet (assuming £1 of share capital)

Unpaid shares .........1
Setup costs ...... 20,000
Assets .................1,500
Bank ....................6,500

Creditors ............. -4,000
DLA ....................-18,000

TOTAL ....................16,001

Shares ..........................1
P & L ......................16,000

TOTAL ....................16,001

This is a back of an envelope calculation. You need to enter your actual figures.

 

[cjcass]

Hi, thanks for the detail.
one question - should the following;
Bank ....................6,500
be,
Bank ....................16,500
?
Rgds,

 

[Scalloway]

Yes the bank should be £16,500. I missed out the 1 when I posted.

 

[CaMaNo]

I am not sure there is a profit and a CT charge?
I interprete the £20,000 spent to get the company off the ground as pretrading expenses that would need to be taken into account?

 

[Scalloway]

Your OP says

profit of £10,000. Taking 20% tax off the profit leaves me £8,000 to draw as dividends with £0 retained profit

Only you know whether the £20,000 start up costs are capital or revenue. If they should be charged to the P & L you are correct, there is no profit so no CT charge.

 

[CaMaNo]

P.S. I am not the OP