investment
, united-kingdom
, accounting
I’m a software developer, not an accountant.
I’ve just created a LTD company, and I’m about to make my first deposit of cash into my new company bank account.
How should I record this for book keeping purposes - where does it go and what is it listed as, do I have to reclassify the Shares recorded at companies house (currently 1000 shares at 0.001). Is it ‘Shareholder funds’ - I have no idea!
Such a simple question seems hard to find an answer.
** Although I’ve accepted the answer below - I’ve successfully accounted for this transaction as a ‘Directors Loan to the company’, which makes me a creditor. I then account for this with ‘creditors falling due after a year’ counterbalancing the cash in bank **
Your double-entry journal will obviously show a debit to cash, but you are asking where to book the corresponding credit.
If you pay-up the money for your 1000 shares (of 0.1 pence nominal value each), that £1 would be credited to share capital—but where should any further funds be credited? The answer is that you have a choice:
You might decide to subscribe to the shares for more than their nominal value, in which case the excess (over the nominal value) would go to share premium. This is pretty straightforward and the only formality would be to keep records of the transaction. Note that you cannot decide at a later date to change the value at which you subscribed to these shares—it is a one-off decision.
You might decide to allot yourself further shares, in which case the nominal value would be credited to share capital (and any excess, as before, credited to share premium). You would need to check the company’s Articles of Association for authority to undertake such a task (but if you are the sole director/shareholder of a company with model articles, you won’t have a problem) and then record the decision in the relevant minute books, together with filing the relevant forms at Companies House.
You might decide to loan the money to the company, in which case the credit would go to shareholder loan. There are complicated rules around this, both from the perspective of thin capitalisation (to protect creditors) and from the perspective of transfer pricing (to protect the Exchequer with respect to the deductibility of interest expenses for the purpose of corporation tax)—I strongly recommend you obtain advice from an accountant before proceeding down this path.
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