Recording Owner's Loan to Company

by Debra
(Ontario, Canada)

How to record a long-term shareholder loan

How to record a long-term shareholder loan

If the Owner makes a loan to the company and it will not be paid back within the year, I know this is a Long Term Liability, but I do not know what to call the account. Also what would be the entry?



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Hi Debra,


I would call the account Shareholder Loan - Long Term. This will differentiate it from the Shareholder Loan account that is normally classified in current liabilities.

Just a note ... if you classify the loan as long-term, make sure any personal expenses are not withdrawn from here ... that is why shareholder loans are normally classified as a current liability account ... because shareholder's tend to make multiple withdrawals (and possibly deposits) over the year for personal expenses.

I prefer to setup a credit card type account in QuickBooks called ""Owed to Owner" (or you could substitute their actual name). I have the owner submit expense reports with receipts attached to get reimbursed for business expenses made with personal funds. If the owner-manager made cash withdrawals, I would also enter them to this account or if s/he make personal purchases with corporate funds.

The owner will have to keep a very close eye on both accounts (if you setup the shareholder loan as long term) to ensure s/he stays in a credit balance. Once the combined accounts move to a debit position, the rules of the game change. If you want to keep the books simple and follow the KISS philosophy, set up the account as a current liability account only.

Your journal entry to setup your long term shareholder loan would be:

DEBIT Cash in Bank (or wherever the funds were deposited ... usually a current asset account on your balance sheet)

CREDIT Shareholder's Loan - Long Term (a long term liability on your balance sheet)

If you go this route, consider ensuring the current liability "Owed to Owner" account is paid back (i.e. the balance is zero) before fiscal year-end each year.

Comments for Recording Owner's Loan to Company

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Aug 04, 2014
Accounting for Loan
by: Anonymous

How do I post a new loan to a company?

Aug 04, 2014
Accounting for Loan
by: Lake

You will find the journal entry discussed here:

http://www.bookkeeping-essentials.com/bookkeeping-entries.html#loanproceeds

Apr 27, 2015
Accounting for Loan
by: Anonymous

How is an unpaid Shareholder's Loan to a Canadian Controlled Private Corporation handled when the Company is dissolved to ensure it qualifies for ABIL?

Apr 27, 2015
Anonymous
by: Lake

I've only dealt with ABIL once and I had a chartered accountant's help on how to book all the entries ... so I'm not the person to assist you.

As this is potentially worth a large tax deduction, I would not go the do-it-yourself route on this one. Book an appointment and have your accountant help you out.

Sep 02, 2015
Loan vs paid bills with personal funds
by: Ama

Hi there,

i've read that using Bills instead of journal entries is better to use when it comes to entering personal funds used to pay bills.

I created a Shareholders Loan Account - Long Term Liability for all bills that my partner and I have paid using our personal funds.

Our 3rd shareholder gave us X amount of dollars as a loan. Do I enter that in the same account (shareholders loan account) or because this was a loan and not necessarily an expense, do I need to create a separate long-term liability account?

Your help is much appreciated!!

Sep 06, 2015
Ama
by: Lake

Check out this chat of mine on my preference for capturing business expenses paid with personal funds:

How to reimburse yourself

Shareholder Loan accounts are now treated as a current liability. Each shareholder should have their own shareholder account.

If the 3rd shareholder made a loan to the company and has no intention of seeking the money paid in the short-term, you could record that loan as long term liability.

I would tend to name the account that the 2 shareholders expect reimbursement for "Owed to Shareholder-1, Owed to Shareholder-2" ... just to distinguish it from an actual shareholder loan ... Shareholder Loan-3.

Feb 24, 2017
Help please!
by: Lynette

I am a self employed bookkeeper and essentially all of the income earned goes back out to pay personal bills. I was bad. I do not have a separate bank account for personal and business. All the income shows being in the bank account of the business but in actual fact, there's isn't much in there at all. (I am getting a business acct today!). I am trying to figure out how to account for the "drawings" I have taken from the business as well as all of the supplies purchased for business use in my QB company file. Would you suggest I show a drawing each month when I get paid by clients and then use the "owed to owner" account for all the supplies, etc that I have purchased for the business?

Feb 24, 2017
Lynette
by: Lake

Wow. I'm stunned that you would call yourself a self-employed bookkeeper and don't know the answers on how to "fix" your own books. The lack of care to the administrative details for your business is a big red flag for me.

IMHO your books need to reflect what actually happened ... I.E. how the money was actually handled.

So if you were paid by a client and deposited the funds into your personal account ... then you need to record the entry to debit "Owner's Draw" or "Owed to Owner" account.

If you have business related expenses that you paid from your personal account, then you need to record the expenses with the offsetting credit to "Owner's Contribution" or "Owed to Owner" account.

As you said you have no separate business bank account then there should be no bank account in your Chart of Accounts at this time.

Take the time to review my CHEAT SHEET so you learn how to think your way through a transaction.

Mar 18, 2017
What to do if closing the business
by: Anonymous

If you are closing a business and you have an account → Loan by owner with a balance in it, but the is no money to pay the owner back, is the final journal entry to close out the loan by owner?

Dr Loan by Owner
Cr Retained Earnings/Owner's Equity

Apr 05, 2017
ABIL
by: Lake

Check out this ...

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/217-228/menu-eng.html

What happens to a shareholder loan of a corporation that becomes financially insolvent?


A corporation doesn't need to file for bankruptcy to be eligible for an Allowable Business Investment Loss (ABIL) claim. However, the shareholder must be able to prove the loan advanced to the corporation is not recoverable.

Source Reference: businessloss.ca

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