Limited Company Bookkeeping - The Basics

[Glenn]

Bookkeeping for a limited company is in many ways simpler than that of a sole trader, largely because there is a clear separation between the owner and the company finances. A limited company is a separate legal entity: it has its own income, expenditure, assets and liabilities, distinct from those of its owners. When a director or shareholder wants to take money out of the company, this can be done in a number of ways, including a salary through PAYE, dividends or a director’s loan.

In QuickFile, a limited company has a slightly different set of nominal accounts and some features that a sole trader doesn’t, such as the Directors Loan Account (nominal code 1201) and Ordinary Shares (nominal code 3000). This guide explains these features and covers some common bookkeeping tasks for directors.

Prefer to watch?

Prefer a video walkthrough? Watch our Limited Company Bookkeeping Basics | QuickFile Support tutorial on the QuickFile Help Guides YouTube channel.

What is the Directors’ Loan Account?

Click Banking and you’ll see a Directors Loan Account in the Loan Accounts group. It isn’t a physical bank account but a ledger (nominal code 1201) that tracks what the company owes its directors, or what they owe the company. QuickFile shows it as a bank account so you can pay purchases from it and tag bank transactions to it.

A director’s loan is where you take money out of the business over and above what you have put in, and that money is not a salary or a dividend. Out-of-pocket expenses that a director pays personally (see below), and money a director lends to the company, are also recorded on the Directors Loan Account.

How do I read the balance?

• A negative balance, shown in red on the Banking screen, means the company owes the director. It appears under Current Liabilities on the Balance Sheet.
• A positive balance means the director owes the company.

Create a loan account for each director

If you have more than one director and want to track what each director is owed or owes the company, create a separate loan account for each of them.

1. Click Banking, then click Create and choose Loan Account.

   

2. For Bank Name, choose Other. You can’t save the account without a bank name.

3. Enter an Account Name, for example “Directors Loan Account - J Smith”. Keep it short: long names are cut off on the Banking screen.

4. Leave Account Number and Sort Code blank if you like: they are optional.

5. Click Save Details. You’ll see “The bank account has been created!” and the new account appears in the Loan Accounts group with its own nominal code.

   

Recording out-of-pocket expenses

As a director of a limited company you may occasionally pay for items relating to your company from your own personal funds. These are referred to as out-of-pocket expenses. They need to be tracked and repaid at a later date, and for this we use the Directors Loan Account.

All you need to do is enter the purchase in QuickFile and pay it from the Directors Loan Account. The balance goes negative and shows as a liability on the company’s Balance Sheet: in other words, the company owes the director. When the company pays you back, you tag that payment as a transfer to the Directors Loan Account, which brings it back to where it was.

Example: You pay £20 for some company stationery using your own personal debit card, so the company now owes you £20. The company is VAT registered, so the £20 is £16.67 plus £3.33 VAT.

Record the purchase

1. Click Purchases, then Enter new purchase.

2. Choose the supplier, for example “Acme Stationers Ltd”. If they’re new, click New next to Supplier Name to add them.

3. Choose the Category (here, Stationery) and enter the item, for example “Printer paper and pens”, £16.67 plus VAT at 20% (£3.33), a total of £20.00.

4. In the Payment Details section, tick Paid. The Amount fills in with the total, £20.00.

5. For Paid From, choose Directors Loan Account (or the director’s own loan account), and choose the Method, for example Debit Card.

   

6. Click Save Details. You’ll see “This purchase has been fully paid up.”

The Directors Loan Account balance goes down by the full £20.00 and shows in red: the company owes you £20. On the Profit and loss report the cost shows as Stationery, £16.67, and the £3.33 is recorded as VAT.

Pay the director back

A couple of weeks later the company pays you back the £20.00 by bank transfer from its current account to your personal account.

1. Click Banking and open the company’s current account.

2. Find the £20.00 money-out transaction and click Tag Me.

3. Choose Bank transfer between accounts.

4. For Transfer to account, choose Directors Loan Account.

   

5. Click Continue.

The Directors Loan Account goes back up by £20.00, so it’s back to where it was before the purchase. The company no longer owes you anything for this expense.

Really, that’s all there is to it: whenever you personally pay for something for the company, record the purchase paid from the Directors Loan Account, and later tag the repayment as a transfer to it.

Lending money to the company

If you pay your own money into the company’s bank account (and it isn’t for shares), the company owes you that money. Record it on the Directors Loan Account:

1. Click Banking and open the company’s current account.

2. Find the money-in transaction and click Tag Me.

3. Choose Bank transfer between accounts.

4. For Transfer from account, choose Directors Loan Account.

   

5. Click Continue.

The Directors Loan Account goes further negative (red), showing that the company owes you more.

It works the other way round too. If you take money out of the company that isn’t a salary, a dividend or a repayment of what the company owes you, tag the money-out transaction as a Bank transfer between accounts with Transfer to account set to Directors Loan Account. If the balance becomes positive, you owe the company money.

Important: An overdrawn director’s loan (where you owe the company) can have tax consequences for you and the company. Speak to your accountant if this applies to you.

Recording initial share capital

To record the initial share capital, make a simple journal that moves the amount from the Directors Loan Account to the Ordinary Shares nominal account. In this example the shares are worth £100.00.

1. Click Reports, then Journals.

   

2. Click Create Journal.

3. Enter a Journal Name, for example “Initial Share Capital”, and check the Journal Date.

4. On the first line, enter (1201) Director’s Loan Account as the Nominal Code, a Description such as “Initial share capital”, and the amount in the Debit column.

5. On the second line, enter (3000) Ordinary Shares, the same description, and the amount in the Credit column.

6. Check the debit and credit totals match (“The total debits and credits must always balance”), then click Save Journal Entry.

   

Nominal Code	Description	Debit	Credit
(1201) Director’s Loan Account	Initial share capital	100.00
(3000) Ordinary Shares	Initial share capital		100.00

Saving the journal moves the Directors Loan Account balance up by £100.00. When the shareholder pays for the shares, tag that money-in transaction on your current account as a Bank transfer between accounts, with Transfer from account set to Directors Loan Account. This balances off the journal, so the Directors Loan Account returns to where it was before the journal.

Tip: If the shares are bought by more than one director, you can put one debit line on the journal for each director’s own loan account, with the single credit to Ordinary Shares. Ask your accountant if you’re not sure how the shares were split.

Please note: The share capital you enter in Account Settings > Management information (on the Share Capital tab) is reference information, used for example for dividend vouchers. It doesn’t post anything to your accounts, so you still need the journal above.

Recording expenses: what category should I use?

When you record a purchase, you choose a category for it. A category in QuickFile is a simplified term for a nominal account. You can see every nominal account by clicking Reports, then Chart of accounts.

The categories you can choose on a purchase come from three groups in the chart of accounts: Purchases (5000 - 5999), Direct Expenses (6000 - 6999) and Overheads (7000 - 9999). The category list shows names only, in alphabetical order. Categories for buying assets, such as furniture, motor vehicles or computer equipment, are marked [Asset], for example Office Equipment [Asset].

When you select a category, the amount is posted to that nominal account. This provides the detail that makes up your accounts: run a Profit and loss report from the Reports menu and you’ll see where everything has been posted. For example, the £20 stationery purchase above shows as Stationery, £16.67.

The categories are based on an industry standard recognised by most accountants and used in other accounting packages. If you can’t find an exact match, let QuickFile suggest one:

1. On the purchase, click Help me Choose a Category.

2. Type a word that describes the purchase, for example “stationery”, and choose from the suggestions.

3. Check the Recommended Category, then click Update purchase form to fill it in.

   

See Categorising your purchases for more detail on choosing categories.

You can also create your own nominal accounts: go to Reports > Chart of accounts and click Create New Account. To make a new account appear in the purchase category list, choose Purchases, Direct Expenses or Overheads as its Category.

Collecting payments from card providers (e.g. PayPal, Stripe or SumUp)

If you take card payments, your income probably arrives in lump sums, usually daily or when you choose to withdraw funds (as with PayPal). You may be wondering how to match these with your individual invoices.

To do this, set up a holding account for the provider: click Banking, then Create and choose Merchant or Payment Service Account. You could call it something like “PayPal Holding Account”. Then:

• Record each invoice payment as paid into the holding account.
• Tag each lump sum that arrives in your business current account as a transfer from the holding account.
• Record the provider’s fees as a money-out transaction on the holding account and tag it as a supplier payment, using the Bank Charges category.

Once the fees are recorded, the holding account should balance back to zero, or close to it.

See Accounting for income from a payment service provider for a full guide.

Recording daily sales from a till

If you run a shop, cafe, restaurant or any business where you take payments through a till, it isn’t practical to enter a client record and an invoice for every sale. Instead, record your daily totals with the cash register tool.

1. Click Sales, then Enter cash register takings.

   

2. Enter one line for each day: the Date, a Description, and the Cash Total and Card Total.

3. Click Save Details.

The first time you open it, QuickFile asks “Do you wish to record sales made by debit/credit card?”. See Cash Register Tool for the settings and how the takings are recorded.

Troubleshooting

My Directors Loan Account balance looks the wrong way round

On the Banking screen, a negative (red) balance means the company owes the director, and it shows as a liability on the Balance Sheet. A positive balance means the director owes the company.

The share capital journal changed my Directors Loan Account balance

That’s expected. The journal moves the balance until you tag the shareholder’s payment as a Bank transfer between accounts from the Directors Loan Account. Once that’s tagged, the balance returns to where it was.

I entered share capital in Management information but it isn’t in my accounts

Management information is reference only and doesn’t post to your accounts. Record the share capital with a journal, as described above.

I can’t save a new loan account

Choose a Bank Name. For a director’s loan account, choose Other.

I can’t retag an older bank transaction

A transaction can be locked if it’s included in a VAT return you’ve already submitted or falls in a year that has been closed. Speak to your accountant before changing an earlier period.

Related topics

Running your business as a sole trader instead? See Sole Trader Bookkeeping - The Basics for the equivalent guide.

• Sole Trader Bookkeeping - The Basics: The same everyday bookkeeping tasks for a sole trader.
• Limited Company vs Sole Trader: How the two business types differ in QuickFile.
• Journals: Create, edit and check journals between nominal accounts.
• Dividends: Record dividend payments to shareholders and create dividend vouchers.
• Recording payroll: Record directors’ and employees’ salaries paid through PAYE.
• Setting up your Management Information: Enter your company’s tax details, share capital and directors.