Directors Current Account

With a great many private limited companies, the directors are the only shareholders of the company, or alternatively the directors hold the great majority of the shares. In such circumstances, it is natural that the relationships between the company and the directors are rather more informal than in public companies. In these cases therefore, it is natural for directors to take drawings from the firm either in cash or in goods.

It is also quite normal for the remuneration of the directors to be agreed after the accounts year has ended, by this way the amount of taxation liability of the company and of the directors can be kept to a minimum. There is nothing illegal in this, it is just a matter of saying that the rewards of the directors cannot be properly assessed until the profit is known. 

It is thus usual for the directors to each have a current account with the company, rather in the way that partners, have current account in partnerships. 

The director is debited with hi drawings of goods and cash, and credited with the amount of remuneration voted to him.

The balance on them account (if, it is a credit balance) is then shown as a current liability in the balance sheet.

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