How to record for shareholder's capital / loan?

This article will guide you through the steps to record the capital you put into your business as a shareholder, or the money you are putting in or withdrawing from the business in the form of loan. 

Below is a quick brief on shareholder's capital or shareholder's loan. You can jump straight to the steps below if you are not interested in knowing these.

What is Shareholder's Capital?

Shareholder’s capital is the money invested by shareholders to finance the business operation. Capital can be assumed as the net assets of the company. It only appears in the balance sheet of the company. Shareholder’s capital is different in sole proprietor, partnership and corporation. Sole proprietor is the business run by a single owner. The owner of the business is the only person invested into the business by using the money from his own or loan from the others. In addition, the owner is liable for all obligations of the business. In sole proprietor, capital account will appear in the balance sheet of sole proprietor.

Partnership is the business run by two to twenty owners. It is similar to sole proprietor. The partners of the company are also liable to all the obligations of the business. However, the capital of the business may be much more than sole proprietor because of more funds are taken out by owners and more loans can be approved by bank to those partners. Capital account will also appear in the balance sheet. Shareholder’s drawings account is used in sole proprietor and partnership business. In Financio, you can use the shareholder's capital account for drawing purpose.

Corporation is much more different with sole proprietor and partnership. Shareholders invest their money into corporation in exchange of shares of the company which are common shares and preference shares. The business has separate legal entity which means shareholders will not liable for the obligations of the business. The value of share capital will only follow the initial public offer share price. It will not increase in secondary share market. In balance sheet of the corporation, normally share capital account is used. 

What is Shareholder's Loan?

Shareholder’s loan is a loan that an individual loan to a company to finance its business. Shareholders will receive interest as a return for loan when the loan term reaches maturity.

Recording an Increase in Shareholder's Capital / Loan

  1. Click on Transactions on the left.
  2. Click on + button then Deposit on bottom right.

  3. Select the bank account the money is going into with Deposit To.

  4. Review the Payment Method, Reference No & Date.

  5. Under Items, select the appropriate Shareholder's Loan or Shareholder's Capital under Account.

  6. Put in an appropriate Description.

  7. Put in the amount and click Save & Approve.

Recording an Decrease in Shareholder's Capital / Loan

  1. Click on Transactions on the left.
  2. Click on + button then Withdrawal on bottom right.

  3. Select the bank account the money came from with Withdraw From.
  4. Review the Payment Method, Reference No & Date.
  5. Under Items, select the appropriate Shareholder's Loan or Shareholder's Capital under Account.
  6. Put in an appropriate Description.
  7. Put in the amount and click Save & Approve.