Directors Loan + Paying Bills From Borrowed Money

Accounting
1

I am no finance person and extremely confused with the Directors Loan concept. I put money into my business to pay for various fees/purchases until I start trading. I’m loaning this money to my business.

  1. When I import Business Account bank feed, I tag payments from my personal account to the company as "transfer between accounts and move it to “Director’s Loan Account”. This created a negative balance which I understand means that the company owes me money.
  2. Once this money is in my business account (not in QuickFile but in the actual bankaccount), I pay various fees. I tag these as paid from the “Director’s Loan Account”.

PROBLEM: When I do this, it’s duplicating the amount the company owes me.

Example:

  1. I borrow the company £20 > move it in QuickFile to DLA - company owes me £20
  2. I pay £20 for stationery > mark it as paid from DLA > company owes a total of £40 - which is obviously wrong.

Can anyone help me understand what is the correct way of doing this?

Thanks a lot!

2

If you lend actual money to the company then you tag that as a transfer from director’s loan to the current account.

If you pay for business expenses using your own money (not the money you’ve already lent) then you tag those purchases as paid from the DL account as this is effectively you lending money to the company and the company immediately spending it without hanging on to the cash in the current account in between.

But it sounds like what you’ve done is lend the cash to the company to top up the current account and then paid the expenses from that current account.

1 Like
3

Hi Ian, thanks a lot for your quick and clear reply! It now makes sense. What I’ll do from now on will be to tag “loan payments” from myself to company acct as transfer from DL to current account. Then the actual expenses as paid from current account. I hope I got it right :smile:

Thanks again!

1 Like
4

Hi @rookie

Glad to hear you’re managing to sort this all OK now.

It’s worth just thinking about the DLA as just you personally. If you lent money to the business, it’s a transfer from you (the DLA). Likewise, if you paid for something on behalf of the business, it’s just paid from the DLA.

Please don’t hesitate to let us know if you have any further queries :slight_smile:

5

Thanks Matthew! The way you put it makes it actually VERY simple :woman_facepalming:

6

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