Explain transactions using the director’s loan account

This article describes how to explain bank transactions that are paid into and out of your business bank account to a director’s loan account.

A director’s loan account is automatically created when you add a new user with the role of ‘Director’.

When you’re explaining a money in bank transaction, you can select which director the transaction relates to from the ‘Received from’ drop-down menu.

Whilst you'll see there is an option to explain payments received into the Director Loan account, there is unfortunately no option to explain payments out of the Director Loan account in a US FreeAgent account type. Therefore, to explain a money out bank transaction, you would use the contra account.

Select 'Other Money Out' from the Type drop-down menu and 'Payment from Contra Account' from the Category drop-down menu.

To reconcile these two accounts, you would then create journal entries to move the relevant balance out of the Contra Account and into the Director Loan account for the appropriate user. The journals would be for the amount of the loan repayment, dated the same date as the money was paid, to the following accounts:

• Debit ‘907 - Director Loan account’
• Credit ‘998 - Contra account’

The Director Loan payments will be added to the Balance Sheet report. They’ll be listed as either Assets (where someone owes you money) or Liabilities (where you owe someone else money).

To view the loan account, simply select the director’s name.

You’ll see all the transactions for that individual’s Director Loan Account.