IFRS for SMEs / For bookkeepers / How to categorise money to and from directors
How to categorise money to and from directors
The rule
Directors and shareholders are related parties (Section 33). Money they put into the company is a loan from a related party, a liability. Money the company pays to them is a loan to a related party, an asset, unless it is salary or a dividend the directors formally declared.
What goes wrong
- A director deposits cash to cover a shortfall and it is booked as sales, overstating revenue and profit.
- Personal expenses paid from the company account are booked as company expenses instead of against the director's loan.
- Drawings are booked as salaries although no payroll was run, overstating employee costs.
What to disclose
For each loan the notes show the balance, the terms and conditions, whether interest is charged and whether it is secured (33.9). A loan with no fixed repayment terms is usually presented as current unless the director has agreed not to call for repayment within twelve months.
Worked examples
| Bank statement line | In or out | Categorise to |
|---|---|---|
DIRECTORS LOAN J SAMPLE | In | Loan from director |
DRAWINGS | Out | Loan to director |
Related
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