- The Directors’ Loan Account
- Recording out-of-pocket expenses
- Recording an initial share capital
- Recording expenses - what category to use?
- Collecting payments from card service providers (e.g. PayPal, Streamline, Barclaycard etc)
- Recording daily sales from a till
QuickFile - Simple, intuitive cloud accounting software, find out more here
Bookkeeping for a Limited Company is in many ways simpler than that of a sole trader, largely due to there being 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 to that of its owners. When the owner (shareholder) wishes to draw a salary from the company it can be done in a number of different ways including PAYE, dividends or director’s loan.
In QuickFile a Limited Company will have a slightly different set of nominal ledgers and a number of different features available within the interface. This guide explains a few of the unique features available for Limited Companies as well as covering some common bookkeeping themes.
Within the bank management area in QuickFile you will notice a Directors’ Loan Account. The Directors’ Loan Account is where you deposit any drawings that the directors make from the company on the basis that it will be repaid at a later date. It is not a physical bank account but rather a ledger to track your directors’ loan liabilities.
A director’s loan is where you take money out of the business over and above that which you have put in, and that money is not a salary or a dividend. Conversely, when a company director makes an out-of-pocket expense (see below) this can be logged to the Directors’ Loan Account.
If you have multiple directors and would like to track what each director is owed or owes the company, you can create additional Director Loan Accounts under the loan header in the bank management section.
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. Obviously these purchases need to be tracked and repaid at a later date and for this we use the Directors’ Loan Account.
As mentioned in the previous section the Directors’ Loan Account (DLA) is represented in QuickFile as a bank account, you can see it in the Bank Management area of QuickFile. It works as a ledger allowing you to see what the company owes its director(s) or vice versa.
For out-of-pocket expenses all we need to do is enter the purchase invoice in QuickFile and pay it from the DLA. This will push the DLA account into debit (let’s assume there’s nothing else on there for simplicity) and reflect on your company’s balance sheet as a liability, in other words your company has a liability to its director(s).
Later you will want your company to repay its liability to the director. If you withdrew the cash from the company’s current account to settle this you would just locate that “money out” entry on your bank and tag it as a bank transfer to the DLA. Now the DLA is back to zero and the director has been reimbursed.
Let’s describe a specific example;
As a director you pay £20 for some company stationery using your own personal debit card, at this point the company owes you £20. You would log this as follows:
Enter a purchase invoice in QuickFile for the £20 stationery purchase and pay this from the Directors’ Loan Account.
Now (assuming the DLA was at zero before) the DLA account shows as £20 overdrawn, like any other bank account would. An overdrawn bank account in the name of the company is a liability on the balance sheet.
A couple of weeks later you want to reimburse yourself the £20, so you make a BACs transfer from the company account to your personal account.
The withdrawal shows on QuickFile as a debit from the company account. Now you would tag this as a bank transfer to the DLA which brings the DLA account back to zero. The company has no further liability to its director(s).
Really that’s all there is to it, whenever you personally incur an expense as a limited company you record it and later reimburse on the DLA account. A DLA in credit means the director(s) owe money to the company, a DLA in debit means the company owes the director(s).
To record the initial share capital you will need to make a simple journal entry reflecting a movement from the Directors’ Loan Account to the Ordinary Shares nominal ledger.
For your convenience an example of the journal can be seen below. You can access the journal screen from the Report menu, under Journals.
If the share capital is paid up, you can tag the payment on your current account as a bank transfer to the Directors’ Loan Account which will then balance off the initial journal.
When recording a purchase for your business you will need to select a category depending on what type of purchase is being made. A Category in QuickFile is a simplified term for nominal account.You can see nominal accounts in full by clicking the Reports menu (horizontal menu) followed by “Chart of Accounts”. You will see all the nominal accounts are numbered, the ones that will appear in the purchase area are 5000 up to 8205 (purchases, direct expenses and overheads). You will also see some items appear under the assets header (1000 to 2999), for asset purchases e.g. furniture, motor vehicles, computing equipment etc.
When you select a category the amount is posted to the corresponding nominal account. This provides the detail that will make up your accounts. Run a profit and loss report and you will see where everything has been posted to!
The nominal categories provided are based on an industry standard recognised by most accountants and similar to other accounting packages. You may not always find an exact match but you can always use our helper tool for guidance. Also be sure to check out our comprehensive guide on nominal categories here .
If you need to you can also create your own custom nominal categories. You can add a new nominal category in the Chart of Accounts screen keeping in mind that to make it appear in the purchase entry screen you will need to make sure it goes under the category Purchases, Direct Expenses or Overheads.
If you have some sort of card payment facility, chances are your income arrives in chunks usually on a daily basis, or when you choose to withdraw funds (as is the case with PayPal). You may therefore be wondering how to reconcile these with your individual invoices. For these scenarios we will need to setup an additional merchant bank account in QuickFile, you can call it something like “Streamline Holdings Account”. Any lump sum payment arriving in your business current account will then be tagged as a transfer from the holdings account. You can then pay any of the individual invoice payments directly into the holdings account and this should then balance the account back to zero, or close enough. Any remaining balance is usually due to a charge levied on the lump sum payment made. Whatever the charges are you can add this on the holdings account as a “money out” transaction and tag it to a supplier purchase under the category “bank charges”.
If you run a retail business, cafe, restaurant or any activity whereby you are collecting payments using a till, it’s clearly not practical to enter every client record and every invoice for each transaction. Instead what you can do is to enter your daily totals onto a single invoice. To find out more about accounting for daily totals click here.