Directors Loan Accounts.

[confused oap]

New two director company with both directors putting £5000 each into business.
Dividends and salaries have been entered into DLAs (both getting the same) Less total amounts paid to individuals.
One director also supplied equipment of £6000 . Also during year both have expenses for company which are reimbursed. Director 1 having
double the amount of expenses of Director 2.
HOW ARE THESE EXPENSES TREATED IN DLA.. Director 2 can now put £6000 into DLA which , in my view should make
them equal. However, the CA says Director 1 is in Cr and Director 2 is in (Dr) to the DLA making Director 2 accountable for all the
overdrawn amount in the DLA and the Credit to Director 1. I cannot get a satisfactory answer. It appears that everytime that expenses are processed this will increase Director 1's Cr Balance and increase Director 2's (Dr)
balance.
Can you help as I cannot understand this at all.

[northernladuk]

And you have an accountant because you don't understand it yes???

[JonSmile]

so day 1
director A £5000
director B £5000
day +30 salaries paid out (say £3000 each)
director A £2000
director B £2000
at this point, the directors are still owed money by company
director A sells comp £6000 of kit (at fair market value I assume!)
so assuming comp STILL has no hard cash to pay out of income..
(which is strange)
director A £8000
director B £2000
now expenses are claimed back
director A £5000 / director B £2500 (A having twice B)
so no DLA is
director A £3000
director B -£500

this shows that B owe cash and A is owed cash, but is a very strange business as if you have been trading for a year you would expect the business to actually have made profit and expenses to come out of the normal expense process and not via the DLA.
But it is logical (I suppose)
A has put in £11k
B has put in £5k
and they have taken same salaries £3k in my simple example
and A is drawing twice as much as B, but still has that extra £6k of kit he sold company to offset this.

NOW if B puts in £6k of cash to match the £6k of kit from A, things would still not be even because A has been drawing more expenses for the year.

It all seems simple and logical to me..

[Nixon Williams]

New two director company with both directors putting £5000 each into business.
Dividends and salaries have been entered into DLAs (both getting the same) Less total amounts paid to individuals.
One director also supplied equipment of £6000 . Also during year both have expenses for company which are reimbursed. Director 1 having
double the amount of expenses of Director 2.
HOW ARE THESE EXPENSES TREATED IN DLA.. Director 2 can now put £6000 into DLA which , in my view should make
them equal. However, the CA says Director 1 is in Cr and Director 2 is in (Dr) to the DLA making Director 2 accountable for all the
overdrawn amount in the DLA and the Credit to Director 1. I cannot get a satisfactory answer. It appears that everytime that expenses are processed this will increase Director 1's Cr Balance and increase Director 2's (Dr)
balance.
Can you help as I cannot understand this at all.

If each shareholder/director has deposited £5000 into the company bank account, then this will be owed to each director until it is paid out.

One director's account is also increased (ie more owed by the company, to the director) with the £6000 being the assets introduced to the company.

So one director is owed £5,000 and the other £11,000

The salary, dividends and expenses will have no direct impact on these amounts. Assuming that all the salaries, expenses and dividends have been paid to each individual shareholder/director, then these transactions will simply be in & out of the account.

From how you describe I cannot see how one of the director's accounts can be overdrawn, you perhaps need to check your entries?

Alan

[blinko]

New two director company with both directors putting £5000 each into business.
Dividends and salaries have been entered into DLAs (both getting the same) Less total amounts paid to individuals.
One director also supplied equipment of £6000 . Also during year both have expenses for company which are reimbursed. Director 1 having
double the amount of expenses of Director 2.
HOW ARE THESE EXPENSES TREATED IN DLA.. Director 2 can now put £6000 into DLA which , in my view should make
them equal. However, the CA says Director 1 is in Cr and Director 2 is in (Dr) to the DLA making Director 2 accountable for all the
overdrawn amount in the DLA and the Credit to Director 1. I cannot get a satisfactory answer. It appears that everytime that expenses are processed this will increase Director 1's Cr Balance and increase Director 2's (Dr)
balance.
Can you help as I cannot understand this at all.

This feels a bit like an exam question

Its not exactly clear whats going on. You both put £5000 in, so this would hit the capital account then the bank account you mention salary and dividends. You would have been better off not putting that much capital in and not taking any salary !?

I belive someone else here mentioend that expenses are in and out, are these expenses you paid from your own pocket then the company is re-embursing you OR are these expenses that the company has incurred.

I think it might be better to start from the begining again, it all sounds a bit of a pickle !!

[Ignis Fatuus]

...So one director is owed £5,000 and the other £11,000

The salary, dividends and expenses will have no direct impact on these amounts.

That seems obvious to me, thanks to Alan of Nixon Williams for stating it so clearly.

If you're owed £5,000 then you're owed £5,000 until it is repaid. Getting paid salary is nothing to do with it.

Or if you must, we can call salary payment the (re)payment of a new debt, the salray. Let's modify JonSmile's example:
so day 1
director A £5000
director B £5000
day +30 salaries become due (say £3000 each)
director A £8000
director B £8000
day +30 salaries paid out (say £3000 each)
director A £5000
director B £5000