Is this OK for use of Directors Loan account?

Accounting
1

We have recently set up a Ltd company.

For each director Is it Ok to log all monthly expenses, purchases and salary to their own Directors Loan account, until funds are available in the business account to repay each Director?

Or is it necessary to set up individual expenses- loan accounts for each Director and use those instead?

Thanks

2

Hi @Harvie

If I’ve understood correctly, you’re asking whether you should set up a DLA (Directors Loan Account) for each director, or whether it’s acceptable to have one for each type of expense. Is that right?

Ideally it should be for each director (although using one account for all of them is acceptable too, just not as clear). This way you can track what’s owed to each director easily from your bank view and balance sheet.

If I’ve misunderstood, please let me know

3

Thanks for you reply.

Our company has two directors and I have set up a separate DLAs for both of us.

At the moment I am paying everything (salary, monthly out of pocket expenses etc for each director) out of their own DLA. This will sit on the DLAs until the company has sufficient money in the business account to repay the directors. I was just wondering whether this is the correct use for the DLAs.

My friend, who uses QF for his own business and recommended it to me, does it slightly differently. He has set up a new account “expenses”. All of his monthly expense get paid to this account and at month end, a bank transfer is tagged from business account to clear the balance back to zero.

As we’re just starting out, I really want to make sure that my understanding and account structure is accurate.

Thanks

4

Either way would be acceptable, but having individual loan accounts can make it clearer to who owes / is owed what.

Personally, I favour the individual accounts because if there are any queries from an accountant or even HMRC about your accounts, it’s easier to trace. But if you wanted just the one, providing there’s a clear way of distinguishing who it relates to (e.g. in the bank description), then it shouldn’t be a problem.

Hope that helps!

5

Brilliant thank you.

I think that, for the time being, I will keep using the individual DLAs for all director cash flow. Maybe once we’re in a position to cover all the monthly expenses, each month end, I’ll set up and start using two director named expense accounts which can then be tagged directly from the transaction on our bank statement.

Thanks for your help