Directors Current Acc & Share Holders Funds
Discussion
Quick question, am I right in saying shareholder funds are completely separate from directors current accounts?
for example if shareholder funds is £100,000, this is essentially all assests (cash, money owed to the company, physical kit, etc) minus all liabilities (money owed by the company, debts, etc).
The directors current account is at £50,000, this is tax-paid cash that "could" have been withdrawn as a dividend by a director(s) but wasnt, hence it's ready to be withdrawn and completely separate from the shareholders funds..
then the company (when all bills are paid in and out) have about £150,000 in the bank, 50k being tax paid for the directors to withdraw, £100k being shareholder funds (typically the directors anyway) which would attract incometax at the normal rate if withdrawn by the shareholders/directors.
Hope that all makes sense, and I've got it about right..
Just trying to get some sums straight in my head!
Thanks
for example if shareholder funds is £100,000, this is essentially all assests (cash, money owed to the company, physical kit, etc) minus all liabilities (money owed by the company, debts, etc).
The directors current account is at £50,000, this is tax-paid cash that "could" have been withdrawn as a dividend by a director(s) but wasnt, hence it's ready to be withdrawn and completely separate from the shareholders funds..
then the company (when all bills are paid in and out) have about £150,000 in the bank, 50k being tax paid for the directors to withdraw, £100k being shareholder funds (typically the directors anyway) which would attract incometax at the normal rate if withdrawn by the shareholders/directors.
Hope that all makes sense, and I've got it about right..
Just trying to get some sums straight in my head!
Thanks
I don't know about the tax situation but I might be able to help on the difference between the two.
As you say, shareholder funds are simply assets less liabilities (I usually call it book value).
Usually it is the excess capital the company has generated by making profits, after paying out dividends.
In your example that sounds like £100k.
Now IF the cash balance you have used in the above calculation INCLUDES the £50k cash from the directors' account, then NO the net isn't £150k, its £100k.
(Unless of course you ALSO registered a £50k liability to the directors.)
You need to imagine what the balance sheet would look like if that £50k didn't exist.
Does it change anything?
Imagine that £50k HAD been paid out, because it isn't the company money if it has been agreed to be paid to the directors.
The company owes them that money so it can't contribute to the current value of the business.
As you say, shareholder funds are simply assets less liabilities (I usually call it book value).
Usually it is the excess capital the company has generated by making profits, after paying out dividends.
In your example that sounds like £100k.
Now IF the cash balance you have used in the above calculation INCLUDES the £50k cash from the directors' account, then NO the net isn't £150k, its £100k.
(Unless of course you ALSO registered a £50k liability to the directors.)
You need to imagine what the balance sheet would look like if that £50k didn't exist.
Does it change anything?
Imagine that £50k HAD been paid out, because it isn't the company money if it has been agreed to be paid to the directors.
The company owes them that money so it can't contribute to the current value of the business.
aha!
I'll check again to see if the balance sheet lists the directors money as a liability or not,
I guess it's optional as to wheter it is or isnt listed. but it needs to be taken into account either way.
As I understand it, it's normal to keep some money in teh directors current account so there is tax paid, ready to go money within the company that can be used to prop up cash flow as needed but also withdrawn and used as private cash by a director if needed.
Will report back when I've read the accounts a bit more.
I'll check again to see if the balance sheet lists the directors money as a liability or not,
I guess it's optional as to wheter it is or isnt listed. but it needs to be taken into account either way.
As I understand it, it's normal to keep some money in teh directors current account so there is tax paid, ready to go money within the company that can be used to prop up cash flow as needed but also withdrawn and used as private cash by a director if needed.
Will report back when I've read the accounts a bit more.
Don't forget that shareholders and directors aren't always the same people.
Directors are the people who manage and run the company.
Shareholders own the company.
If directors have personally put money into the business in the form of a direct cash injection or in the form of assets or costs of the business which they have paid for personally, the company in theory owes that money back to those directors and the amount thus owed will be shown in the directors' loan accounts. A separate account should be maintained for each director who has loaned money to the company in this way.
A director's loan account can actually go the opposite way - if a director has repaid himself in excess of what he may have been owed by the company. HMRC does not like this and will penalise a company if they allow a situation like this to develope.
Directors are the people who manage and run the company.
Shareholders own the company.
If directors have personally put money into the business in the form of a direct cash injection or in the form of assets or costs of the business which they have paid for personally, the company in theory owes that money back to those directors and the amount thus owed will be shown in the directors' loan accounts. A separate account should be maintained for each director who has loaned money to the company in this way.
A director's loan account can actually go the opposite way - if a director has repaid himself in excess of what he may have been owed by the company. HMRC does not like this and will penalise a company if they allow a situation like this to develope.
Eric Mc said:
A director's loan account can actually go the opposite way - if a director has repaid himself in excess of what he may have been owed by the company. HMRC does not like this and will penalise a company if they allow a situation like this to develope.
Also if the company goes into liquidation, an overdrawn loan account is an asset of the company and the liquidator will look to the director to repay it.Gassing Station | Finance | Top of Page | What's New | My Stuff