When you start a business there are initial costs such as insurance premiums, website packages, stationary and accountancy fees. To keep everything tidy from the outset it is a good idea to loan your business some money whilst you’re waiting for payment from your first customer.
You’ll need to use a director’s loan account in inniAccounts – this is an accounting record of money being borrowed from or loaned to your company. By default the director’s loan account is enabled in inniAccounts but should you ever borrow money from your company using a directors loan, please read this alternate guide.
How to record the loaning of money to your company
A common mistake when recording a loan in the business account is to use the ‘Enter New Transaction’ and then selecting ‘Enter other income’. The problem with this is that this type of income gets recorded against your sales and your sales are what your tax calculations are based on. Using a director’s loan ensures that no tax is paid on the money when it enters and leaves your company.
Once you’ve decided how much you are going to loan your company, your next step is to transfer the money from your personal bank account to your business bank account. You can then record this transaction in your books against your Directors Loan account.
To credit your director’s loan account:
- In your bookkeeping area, select the director’s loan account.
- Click ‘Enter New Transaction’ then select ‘Transfer to another account’.
- Enter the date, description, amount, and select transfer to Business Bank Account. If for example you are lending your company £1,000, enter this as a positive amount.
- Check the matched box and then press Save.
This will now show a balance of -£1,000 on your director’s loan statement which indicates that your company owes you money.
Now select your Business Account from your bookkeeping area. You’ll see a transaction has been created automatically for the director’s loan £1,000 credit. This transaction awaits matching (reconciliation) that you have paid the money into your business account. Simply edit the transaction and check the box to match the details (date and amount) in inniAccounts so they match exactly those shown on your business bank statement.
You have now successfully loaned your company money and recorded it in your director’s loan account. This is reflected on your Balance Sheet that you can find in Reports in your Taxes and account area, and also in your LiveCash.
The next section of this page explains how you will handle the repayment of the loan in inniAccounts.
How to record the repayment of a loan from your company
When you company has adequate cash to repay the loan, the reverse of the previous actions needs to be taken to clear your director’s loan account.
To debit your director’s loan account:
- In the bookkeeping screen, select the Business Bank Account.
- Click [Enter New Transaction] > [Transfer to another account].
- Enter the date, description, amount, and select transfer to Directors Loan account.
- Save the transaction.
This will show on your business bank statement in inniAccounts as £1,000 paid out. You can pay the money from your business account and mark that transaction as matched. Again, as a result your bank balance should match again exactly that shown in inniAccounts.
You now need to update your director’s loan account to match the transaction. From the Account list you will need to select Directors Loan.
You’ll see the £1,000 transfer has been created automatically in the director’s loan account which now needs to be matched. If the full balance of the loan has been paid, the balance of the director’s loan will equal zero when then transaction has been edited to matched / reconcile it.
Your director’s loan account is now up to date. If your company has not repaid the full amount of the loan, the remaining balance will be shown on the director’s loan account.