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toddmag
May 14, 2019
Question

Is this Journal Entry to offset a shareholder loan with a dividend correct?

  • May 14, 2019
  • 2 replies
  • 0 views

I pay most business expenses personally so I'm loaning the company money and (1) any revenue I collect, and (2) any cash I transfer from the company bank account to my personal account go towards offsetting this outstanding shareholder loan balance. 

 

If the company has paid out $1000 more to me than I've loaned it, I want to convert this to a dividend to claim it as income without affecting the cash balance of the bank account. This is how I made the journal entries... are these correct?

 

CR Loan from Shareholder $1000 (clears the shareholder loan)

DR Dividends Payable $1000 (increases Dividends Payable)

 

CR Dividends Payable $1000 (clears Dividends Payable)

DR Retained Earnings $1000 (reduces Retailed Earnings accordingly)

 

Thanks in advance.

    2 replies

    L
    LauraAB
    May 14, 2019

    Hi there toddmag,

     

    I'm going to leave the answer in this case up to our accountant users here in community. Recording dividends in both QuickBooks Online and QuickBooks Desktop (I see you've chosen both in your tagging) requires some workarounds and accounting methods. For that reason, it's best to consult an accountant to determine how to record these kinds of transactions and ensure what you're doing is correct.

     

    To connect with an accountant familiar with QuickBooks Desktop, check out our Find a ProAdvisor page and use your postal code to search for accountants who know the program.

     

    Thanks for being a part of the QuickBooks family! :) Have a great day.

    T
    toddmagAuthor
    May 14, 2019

    Thanks for your reply. I removed the QB Online tag if this helps. I'm simply looking to know if the journal entries I made are correct, given my circumstances.

     

    Regards

    Todd

    L
    LauraAB
    May 14, 2019

    You're welcome, Todd. Knowing you're using QuickBooks Desktop may help in this case with what others suggest. I know you're hoping to learn if what you've come up with is correct, which still requires an accountant's eye. Hopefully someone will chime in shortly.

    N
    NEVER
    May 15, 2019

    The first part looks correct - effectively moving what the business owes you to Dividends Paid. The second entry is NOT correct and is unnecessary. Once you have cleared the Shareholder Loan, the debt to you is Paid (the business no longer owes you that money). This does not affect Retained Earnings until the next fiscal year when QB automatically closes the financial records for the previous year.

    T
    toddmagAuthor
    May 15, 2019

    Thanks. I wasn't sure if Dividends Payable was the same as a dividend being PAID and I didn't want it sitting in 'payable' and not being cleared.  However, because the company has already effectively paid me this amount because it's given me more money than I personally spent in expenses, I didn't want it sitting as a loan to me and instead wanted it reported as personal income. So based on this, your advice still stands?

    N
    NEVER
    May 16, 2019

    It does - provided that the Dividends account is an Equity type account. Each time you move funds from the Shareholder Loan account to the Dividends account, the business owes you less and the Equity in your business increases.

     

    An easier way to move funds between accounts is to use the Transfer Funds function in the Banking menu.

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