On Sun, Mar 2, 2014 at 4:31 PM, Benedict White
<ledger...@ourhobbies.co.uk>wrote:
>
> On 03/03/14 00:00, Chris Travers wrote:
> >
> > Yes. That is both correct (assuming your £1000 is a loan to the
> > company from the director, not the other way around). What doesn't
> > make sense about it?
> >
> Well, the Share account is credited to show the company has an asset of
> capital whereas the directors loan account has at some point (though not
> in the short term) to be paid back. So whilst it makes some sense it
> makes a little less than the share issue. (Please remember, I'm not an
> accountant).
Ok. So let's start with two basic assumptions:
1. A business owns nothing but what it owns on behalf of others. This why
your books have to always balance, and why assets - liabilities = equity.
2. The money borrowed from the director then does not affect equity
(assets held on behalf of the shareholders).
So your director's loan is a liability. After these two transactions you
have (account numbers arbitrary here):
1011 Asset Bank Account: Debit balance 1010 GBP
2010 Liability Director's Loan: Credit balance 1000 GBP
3010 Equity Share Capital: Credit balance 10
Your balance sheet should show this.
As a note, if you are dealing with share capital in a real business, you
would probably want to track who owns the shares and so depending on how
many shareholders you have, you would probably want to track this either in
an external system, whether paper or electronic, or by adding additional
accounts for each shareholder (for example: 3010-001 Capital - Chris
Travers).
> I take it that the general ledger is also (by similar means) the way to
> enter in purchases of sundry items, professional fees (For example
> company formation fees) and other sundry expenses?
>
Ok, this may seem a little long-winded but it might be worth providing a
basic introduction here. We try to keep relatively close to the paper
world because the techniques of paper accounting are robust, transparent,
and time tested.
In the paper accounting world you have journals and ledgers. The journals
are where you enter your transactions and the ledgers are aggregations of
what was entered. The general ledger is thus the financial side of your
books aggregated from all your journals (general, sales, purchase, payroll,
receipts, disbursements, etc). You may have various special ledgers as
well (showing such things as inventory or share ownership).
This distinction is blurred in the software world but it is still a useful
distinction to keep in mind. Stuff gets entered into journals. It gets
presented in ledgers. We are moving more towards this approach with the
financial rewrite I am hoping to complete for 1.5.
The big thing missing from the general journal/ledger is an ability to
connect directly to any other information. So for a few directors or banks
who loan money, you can track who is owed using separate chart of accounts
entries. Misc expenses might be ok too as long as you don't have to track
who the money was owed to and they are paid at the same time they are
accrued. However for expenses, I would just go with AP transactions
against a generic vendor if they are paid right there. This helps ensure
that your AP reports show the expenses.
Things which are sort of core general journal entries are:
1. Transfer of money from one account to another, especially between asset
accounts or the like.
2. Financial adjustments for reporting purposes (for example, accounting
for unearned income).
You would also use it any time our current modules do not offer
functionality specific to what you are doing, such as:
1. Tracking of equity and disbursement of earnings where there are few
shareholders.
2. Payroll (in 1.3, and in 1.4 until your area is well supported).
3. Tracking large loans to financial institutions
Hope this helps,
Chris Travers
Efficito: Hosted Accounting and ERP. Robust and Flexible. No vendor
lock-in.
http://www.efficito.com/learn_mor <http://www.efficito.com/learn_more>e
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