Member Loans and Salaries

[Jackieb]

Hi,

I am getting my company books upto date and I am having a small (BIG) issue with member loans - it all seems very confusing (I am not an accountant)

I use Quickbook Accountants Edition 8.0.
I have created 2 loan accounts:

Credit Card Loan (other current liability)- for all purchases from my credit card that needs to be paid back

Members Loan Account (long term liability)- we use this to track all of our personal expenses that we put throught the company (naughty I know but we will get to drawing proper salaries soon)

I want to know how do I capture the transaction to back-pay our "salaries" (below PAYE threshold) from our members loan?

I tried to do a journal entry and tranfered monies from our "Member Loan" and Credited "Salries & Wages" but when I did a Profit & Loss and Trial Balance report - things just didn;t look right - so I deleted all those entries.

Any cl;arity on this issue would be greatly appreciated;}

[BusFact]

I want to know how do I capture the transaction to back-pay our "salaries" (below PAYE threshold) from our members loan?

I tried to do a journal entry and tranfered monies from our "Member Loan" and Credited "Salries & Wages" but when I did a Profit & Loss and Trial Balance report - things just didn;t look right - so I deleted all those entries.

Any cl;arity on this issue would be greatly appreciated;}

Non accountants reply:

I'm not exactly sure what you are trying to do. Do you want to now pay yourself a salary into your loan account as though you had been doing it for the last few months?

In that case, journal will be: Debit Salaries, credit your loan account. I'm not a regular Quickbooks user so unfortunately don't know which exact menu instructions to provide you with.

[sterne.law@gmail.com]

Correct, the original error is you crediting salaries.

If you are using the journal -
DEBIT - Salaries
Credit - Loan Account

Journal is the only method from an accounting perspective. Dont forget the UIF payment!!!(which you can do as a cheque payment which will be simpler than a journal. if you want to do journal then transaction is -
Debit = Salaries Full amount(R6000)
Credit - Loan person A (R3000)
Credit - Loan person b (R3000)
Debit - Payroll Burden:UIF (60) this is an expense account
Debit - Loan person a (R30)
Debit - Loan person b (R30)
Credit - bank (R120)
You can however do the journal and then save it. Therefore each month it can be automated or various options (Do a journakl entry, then before saving, GOTO edit, select memorize journal entry and follow the list)

The transfer funds is for any form of bank accounts, eg. Cheque account to petty cash. Or Bank to credit card etc, etc.

[flaker]

Jackie,is your surname Sele..

[Dave A]

Flaker, I don't think Jackie is talking about claiming personal expenses as expenses of the company

[Jackieb]

HI

Thanks sterne.law@gmail.com - I am sure this will work out - I'll give it a bash and let you know. Just got confused as which account to debit and which to credit;}

and no flaker my surname is not selebi - although turning corrupt looks like the way to go nowadays;}

[Jackieb]

Ok I have debited my salaries and credited each loan account (mine and husbands) that I just set those new loans up.

I now presume I need to debit the main MEMBERS LOAN - and credit each one of our personal loans (which I captured our salries to)?

[BusFact]

Sounds like you have a single "Members Loan Account" ledger where all the costs to date have gone. You now want to get rid of that account which includes all your private expenses which have been paid using the company's funds and instead split everything between the two members. Have I understood correctly?

If yes, then you want to do the opposite: Credit the main members loan account (This will cancel out all the previous debits) and debit the individual loan accounts which will have the effect of reducing the credit you just made into them. This is essentially the result of your salary now being reduced by your private expenses.

I hope I understood you correctly.

[Jackieb]

HI Thanks BusFact

Thanks it all seems to be working fine now.

[Jackieb]

Members Loans captured wrnog

Hi again,

Thank for all the previous help.
I have just discovered another rather disturbing mistake - that my previous acocunt didn't

When I captured my personal expenses, I:

Banking
Write cheques
Bank account - savings
Pay - the vendor i.e. Pick n Pay
Account - Members loan

Now if I go to chart of accounts - members loan, all the payments reflect as a Decreased amount? This should be increased?

Is there anyway to fix this easily? And exactly how do i capture these member loans - as a journal entry?

[sterne.law@gmail.com]

I s your members loan set up as an expense or as a liability?

[BusFact]

Now if I go to chart of accounts - members loan, all the payments reflect as a Decreased amount? This should be increased?

You have a loan account into which your salary is paid. Say R10'000. The company now owes your R10'000 as it has not yet been paid into your private bank account.

Now you pay for your private groceries for R1'000 at Pick n Pay using the company bank account.

The result is that the company now only owes you R9'000 instead of the original R10'000. Therefore it should be a decreasing amount. If this is what you are experiencing, then it sounds corrrect to me.

[Jackieb]

round about way

Hi

I have managed to fix it:

I created an UNDRAWN FUND account, made a General Journal Entry
CREDITED - UNDRAWN FUNDS
DEBITED - MEMBERS LOAN

I did this at the end of financial year end for the full amount.

[Dave A]

When you're paying a bill on behalf of a member, you would debit the member's loan account and credit the bank account.

If the member's loan account has a credit balance (company owes them money), the balance will reduce.

EDIT - note to self: check next page before posting answered by Busfact already

Jackie, based on your post above, all you've done is shift the "problem" (and by the looks of things, there wasn't really a problem in the first place ).

I must confess I bit my tongue earlier to see what came up (how others deal with things is always interesting), but I deal with members' loan accounts (in my case directors loan accounts) slightly differently.

I'll make a post on it once I've checked over the rest of the forum.

[Dave A]

Two types of member "loan" accounts

I'd like to suggest that member loan accounts fall into two categories, short term and indefinite term - and it's worthwhile distinguishing between the two in your management accounts.

What I do is have the "indefinite term" loan account set up as an equity account. This is for funds you have no intention (or expectation) of drawing against within the next year as a minimum. Essentially it forms part of the company's capital funding, and you want it in the equity section for a number of reasons - not least of which is to calculate your ROI. Leave it out of your ROI calculation and you're just fooling yourself.

The short term loan account has to fall in the current assets or liabilities section. Whether you set it up as a bank account, credit card account, other current asset or liability is dependent on who tends to owe who and to some extent up to you. Personally I have it set up as another bank account because that is how it tends to get used - it's money on call and all the day-to-day member "loan" transactions go in here.

In an ideal world the balance in the call account should never amount to too much - late payment of salary at worst, but more commonly payment out of personal wallet because petty cash has run a bit low today, offset for goods taken for personal consumption/use, company paying personal stuff such as you've mentioned (all of which is less than ideal BTW - but it happens and you need to keep track somehow)

From time to time you want to look at what's been going on in the call account (normally when drawing up annual financials) to see if you shouldn't be transfering some part of the value to the indefinite term account - particularly if there is a balance that is proving "sticky".