USA Capital contribution through loan


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can the journal entry for capital contribution be booked as loan from shareholders and each month principal payment be transfered from loan account to Captial contribution. What is the best way of booking
 
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Werner Reisacher

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The decision whether payments made by shareholders into a company are to be treated as "shareholder loans" or whether the purpose of such payments is to increase the company's share capital must be made by the shareholder. The accountant's role is to carry out the book entries in line with the instructions received in the form of a "written document, duly signed by the authorized officer". Copy of such document to be attached to the recording voucher.

Debit: Cash Credit: Shareholder Loan - if the shareholder intends to grant the company a shareholder loan
Debit: Cash Credit: Share Captial - if he shareholder intends to increase his share capital
Debit: Shareholder Loan Credit: Share Captial - If the shareholder decides to convert part or all of his Shareholder loan into share capital.

If the legal entity has more than one shareholder, make sure that you keep track of the breakdown of both, the loans and the share capital balances for each shareholder.
 
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kirby

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Sounds like this is what you are asking:

1. Company receives a $50,000 loan from shareholders

DR Cash $50,000
CR Loan Payable to Shareholders

2. Periodically, loan principal and interest are "paid" to shareholders by increasing their share capital. No cash is paid.For the example at this month, $1,000 in principal is paid and $200 interest expense for a $1,200 payment.

DR Loan Payable to Shareholders $1,000
DR Loan Interest Expense $200
CR Shareholder capital <$1,200>
 

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