I have a small accounting question. I understand that you are not my accountant, I am not going to hold anyone liable, accountable and will not quote anyone’s advice, I just need a point of view from experience to better understand the issue. I have researched the internet, forums, videos but always get vague answers, so I was wondering if anyone could give me some pros and cons on the topic below.
Scenario: a company initially issued 100 ordinary shares at £1, which were fully paid up. Later one of the directors paid another £1000 into company’s bank account for financing all various start up costs. For the initial issue of shares I would debit cash £100 & credit share capital £100. But for the later cash transaction would it be better to recognise credit as a directors loan or issue another 1000 shares at £1 each? If share issue is the correct method would it be better to issue preference or ordinary shares? My main concern about directors loan is that it disturbs the financial reporting, and increases the liabilities of the company while leaves wealth at very low. And I am not sure how it will be perceived by investors and banks.
Thank you in advance!