Hi all, Kindly assist on the correct treatment of directors loans on the balance sheet. Do we present it under short term or long term liabilities?
What is the correct balance sheet presentation of Directors' current account?
Answers
Typically employee loans are paid back in less than 12 months and recorded as short term asset rather than a liability because the company expects to be repaid.
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Thanks Christie, what if the loan is extended for more than 12 months? Can I treat directors' current account a part of Equity?
You could call it a long term asset. Let me ask why you are thinking an Equity account? When you say "director" would this be an owner of the company?
Thanks, I have encountered this scenario on the due course of analyzing brokerage company. They have treated "Directors' current account" as part of owner's equity. The director said owns significant part of a company.
It looks like Christie interpreted the question to mean a loan TO a director and Anonymous might mean a loan FROM a director. In the case of a loan from a director the loan documentation would determine whether it's short term (less than 12 months before scheduled repayment) or long term (more than 12 months). If the loan is a capital contribution there should be documentation on that as well, and it would be treated as APIC in the equity section.
Thanks Kevin & Christine, I wanted to know from both ends (To and From). Some how you have opened my eyes.
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