How to Enter Shareholder Loan Journal Entries in QuickBooks Online

Hello everybody. Today we're going to talk about recording a shareholder loan in QuickBooks Online. So first let's talk about what a shareholder loan actually is. A shareholder loan is simply when a shareholder owes money to a corporation or when a corporation owes money to a shareholder. So there are several ways in which this can arise. A shareholder can lend money to the corporation on either at the startup stage or anytime after to fund operations or investments. Secondly, a shareholder might transfer assets that they hold personally or from an unincorporated business. These assets might include computers, inventory, furniture, etc. The third instance is when a shareholder incurs business related expenses that are paid from their personal bank account. This is then reflected in your business as part of your business operations and the corporation owes the shareholder money. The fourth example is when the shareholder actually borrows money from the corporation for their own personal purposes. And lastly.

The fifth way in which a shareholder loan is impacted is when dividends are declared and these are payable to the shareholder. And these can, depending on how you record your borrowings from the corporation, these can impact the shareholder loan account. So let's look at how to do all of this in QuickBooks.

So first let's go in and set up the shareholder loan account. You can either click on Chart of Accounts from the left hand side menu, or you can find it under the Gear section under Chart of Accounts. So you would click on New. The account type is conventionally other current liabilities. And in terms of the detail type you can scroll down and you can find short term borrowings from related parties. Since the shareholder owns all or part of a corporation, you would then change the name to Shareholder loan. And the default tax code is generally exempt as transactions relating to the shareholder loan generally do not have any impact on taxes. Remember, this can always be changed within the transaction. You're not stuck with it.

But it will likely apply to the majority of transactions related to the shareholder loan. Once this is set up, click on Save and close.

And then we are now ready to enter our journal entries. To create a journal entry, you would click on New.

And you would select journal entry.

QuickBooks and populates it with a journal number. You can also enter a description if you prefer and you want to make sure that the date is correct. So first our first transaction is when the shareholder lends money to the corporation. And let's look at how that works. So the corporation is receiving money from the shareholder and therefore up.

In our case it is a checking account and debit increases cash. So say you've lent $1,000 to the corporation you would debit $1,000. And then on the credit side, since you have loaned money to the corporation, the corporation owes money to the shareholder. And so you would credit shareholder loan which increases the liability.

Once you have done that, you can put a description in reflect amounts loaned to the corporation or whatever is descriptive for you. Don't hesitate to make this as long or as short as possible. More detail is better so you remember nothing else really has to be completed here. If you want you can choose a name, you can choose your name from the drop down and other than that you are done. So let's click on save and new to save this entry.

Let's look at our second example which is where the shareholder transfers assets that they hold personally or an unincorporated business like a sole proprietorship. And this might be in this case we are going to transfer a computer and some inventory. So again make sure that the date is correct, the date on which the assets are transferred. From here, from this drop down we will select computer equipment. We see that we already have this. Let's say that computer, the fair market value of the computer that you are transferring is $1,200.

And then we also want to transfer some inventory that we held in our prior business that we are now going to use in the corporation. So let's click on inventory. Inventory asset is already set up. If it isn't, you can simply go and add new and set it up. So let's say our inventory value is $1532. This again is the fair market value of the inventory.

QuickBooks then shows you a total of the amounts here at the bottom. Both of these are increase the shareholder loan balance from the corporation owing to the.

Shareholder and it automatically enters the total of these two amounts. It's important to remember with a journal entry it has to balance. This is a key fundamental feature of journal entries and accounting double entry bookkeeping in general. And so this will always be the total, the credits will always be the total of the debits. Again in the description you can enter something and I would enter details about the computer, about the inventory asset, whatever you think is necessary and again make it as long as you want. I'll just simply put reflect computer. You can have different descriptions.

Here you can put computer and inventory. So now we are done with this transaction, we can save and close it.

So now let's look at our third transaction and we'll click on journal entry again here. And the third type of transaction is when you as a shareholder incurs business expenses, but you have paid for them personally. In our example, let's assume that you have paid for your Internet through your personal account.

And you've also paid for your telephone expenses through your personal account. So let's enter that. So we're going to type in here, we're going to type in Internet.

And there's no Internet expenses set up. So we can simply add new Internet expenses. Again, remember to choose the correct detail type. This is an expense, Internet is an expense. And in terms of the detail type, there is. You can use communications. Actually communications is not here. Utilities is the detail type that would apply in this transaction. So select Utilities. If you're not really sure the detail type isn't that important. You can always just choose Office General administrative expenses. If nothing, none of these categories apply. So click on utilities.

So for the default tax code, Internet usually does have sales taxes on it. Let's assume you live in Ontario. We'll select HST Ontario and then this will automatically show up on the transactions as an option that can also be changed. So let's save and close this. And now Internet has become a new account that you have. Let's assume that you spent a hundred dollars on your Internet for the month of September. And if you want to add sales taxes here you can.

And that's HST Ontario. And just make sure this agrees to the bill that you have. And the sales tax actually shows up here. So you can, you would. You will be able to claim this against the sales taxes collected and all of that will be part of a future video.

So let's also set up your telephone expense.

And let's assume you paid another hundred dollars for your telephone. This also has sales taxes on it. And so you would want to make sure and actually I made an error here. This should be HSE Ontario on purchases, not on sales because you're actually purchasing something. And this dictates where the sales tax is reflected on the sales tax return, which is very important. So, so now we have our total, we would put in shareholder loan. And you'll Notice again that QuickBooks Online automatically calculates the total based on the $100 plus the $26 of sales tax. So this is the amount that the corporation owes the shareholder for incurring these expenses personally.

So let us save.

And new.

Our next example is when the shareholder actually borrows money from the corporation. So this is simply a reverse of our first entry where we debited the the bank account and we credited the shareholder account, shareholder loan account. So here we are going to click on checking. We are going to credit checking because money is coming out of the checking account. Let's enter $1,000. And the shareholder loan is also the liability is being reduced by $1,000.

If you have never loaned money to the corporation, this will show as a negative liability on your balance sheet, which simply a negative liability actually means that it's an asset. And here you can put withdrawal or you can put the purpose of the withdrawal, whatever you think is best.

And this is simply how you enter the borrowing from a corporation by the shareholder.

So now let's just look at our final example, which is when you declare dividends, dividends are usually at a year end of the corporation. So let's say the year end of the corporation is November 3rd 30th and you have decided you have borrowed $10,000 during the year from the corporation that you now want to declare as dividends. And this is all part of a salary versus dividends discussion. There's lots of resources on this on my own website and on the Internet.

So to set this up, let us select dividends paid.

Note the dividends paid is an equity account. So you can set it up. It is basically an owner distribution and we are going to pay ourselves as shareholders $10,000 of dividends from the corporation. So if you have taken this out during the year via withdrawals, this will impact the shareholder loan account. And so you will credit the shareholder loan account.

For the same amount of $10,000. And it takes it from being a negative liability, increases the liability balance and brings it back into a positive liability depending on the amount. So if you have $9,000 sitting in your shareholder loan account owing by the shareholder to the corporation, then this $10,000 will leave a remaining $1,000 payable to the shareholder. So description, you can just put dividends declared and whenever you declare a dividend you have to prepare a T5 and if you're in Quebec, an RL3. And there's also resources on my website relating to this. If you want more information on that. There's no sales tax. The name again, you can select your own name if you want. The details should cover it and that is it. So we are going to save and close this transaction. If you want to see your shareholder loan balance, you go to reports, you can go to the balance sheet and in the balance sheet the correct date is reflected. So we want to maybe choose this fiscal year. So let's run report and you'll see the shareholder loan that we have been looking at is 12,958. And this is based on all the transactions that we have entered.

So it's important to note that shareholder loans only apply to corporations sole proprietorships. Conversely you can also take money out of a sole proprietorship and contribute funds but it is referred to as owner's contributions or distributions and the tax treatment is different on both and it is because a sole proprietorship is simply taxed on the profits of the business on a personal level while in a corporation it is a little more complex than that. And it is also important to note that there are special rules around withdrawing funds borrowing money from a corporation by a shareholder in that they must be declared a salary or dividends within a year of being withdrawn or repaid.

So that ends our tutorial on shareholder loans. I hope you found this helpful. Please like subscribe and if you would like to see videos on any specific topic please let me know in the comments and I will try my best to set it up. Have a great day.