Working Capital / Loan ?

[OdetteBK]

Hi!

My friend is starting a new company & asked me to start the bookkeeping. I have encountered a problem for the first time in 20 years of bookkeeping & not sure if it just still 'holiday brain', or whatever... but I can't seem to wrap my brain around this one.

He has done work for the company for the last year without claiming a salary but wants the salary owed to him recorded as "Working Capital" or as a "Loan" which the company must pay back either way. How do I record this in the books?

Thank you in advance for any help in this regard!

[Mike C]

Hi Odette - I would imagine that if your friend was to get paid a salary, and there was not enough money in the company, the company would first have to "loan" the money from someone (in this case him) so that the company would have the money to pay the salary.

If that is the case then you would credit the "loan account" with the relevant amount and debit the "Salaries and Wages account" with the same amount.

I'm not an accountant, so may be way off the mark, but that is what my mind says that it boils down to in simple steps.

[sterne.law@gmail.com]

As per mike, then payments towards salary get credited to bank and debit loan account.
I often created a 'salary loan account'. There may be a few shareholders and the MOI may have interest issues etc, more just to keep it separate. The non payment often occurs with cashflow etc.
Remember that a salary 'paid' still needs to be taxed even if it's an accrual.
It sounds as if there are other partners, so the salary needs to be accounted for unlike if there is a single shareholder where the accounting can be done more with tax in mind than who owes who.

[OdetteBK]

Thanks Guys! You are stars!
I had thought of it the way Mike described, but I couldn't believe it was that easy... I over think things sometimes