I need to record a director’s salary to show that only part of it is actually being drawn. Say the salary is £1000, £800 is drawn and £200 is left in the business. I’ve asked our accountant how to represent this and he’s answered me but I’m really none the wiser. He’s said it should be “a purchase invoice to John going to directors salaries” and I’m just too embarrassed to go back to him and ask for a walk through on how to do this. I can’t work out the ‘from’ and ‘to’ - do I need to create the director as a supplier? John pays one or two of our costs from his personal account and I know how to show those as going to his director’s loan, but then we have an obvious external company as a supplier. I’m always creating invoices for our customers and creating payment records for our purchases but I have no background in accounting and I’m really at sea with this. If anyone can just help me join the dots I’d be grateful, thank you.
The director’s loan is just another bank account. The simplest way to deal with it is instead of tagging the £800 transaction as payment of salary, instead tag it as a transfer to the director’s loan bank account. Then in the DL account itself manually create a money out transaction for £1000 and tag that as the salary payment.
Effectively the director has loaned the company £1000 to pay salaries, the company has immediately repaid £800 of that loan, leaving £200 outstanding.
Ian can I just jump in here and ask when you say “The director’s loan is just another bank account.” Do you mean that the Director’s Loan Account/Directors Current Account should be set up as a bank account in QuickFile?
I have always just setup DCA’s as a simple liability account on the balance sheet and used journals to make entries. Are there any advantages on showing it as a bank account?
Thank you.
Michael
Using a plain liability nominal is fine if all your loan payments and repayments are explicit (director transfers money into or out of the company bank account). But the nice thing about representing the DL itself as a bank account (which it is by default in a new QuickFile account) is that it makes it easy to record “implicit” loans where the director makes purchases on behalf of the business using their personal funds.
Purchase payments in QuickFile have to come out of a bank account. With the DL-as-bank you can simply make a purchase and log it as paid from the DL directly, rather than having to use some other dummy bank account as an intermediary.
(Note that you can still use bank account nominals in journals, and configure them to be usable as line items in sales and purchases if you wish, so everything you can do with a plain nominal you can also do with a bank account)
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