Can the proprietor of a company give a loan to his proprietorship company ? Please clarify .
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Quick Summary
A proprietor cannot technically lend money to their own sole proprietorship company, as it's not a separate legal entity. Funds introduced should be treated as capital. According to the business entity concept in accounting, the business and owner are distinct for financial records. Therefore, any funds put in are a liability of the business to the owner, and withdrawals are drawings. While it might seem logical to show it as a loan, it's best practice to record it as capital, reflecting the reality of the owner's investment.
The right way to introduce the funds in proprietorship is through capital only . You can withdraw it when the funds are available or business is in profits
There are certain Accounting Concepts 1) Business entity concept 2) Money Measurements Concept 3) Cost Concept . Almost all Business entity have accepted Business Entity concept , wherein Business and Business owner are two different entities for accounting purpose , So anything invested in the Business , same is the Liability of the Business to pay back , similarly anything withdraw from Business will be treated as Drawings by the owner and payable to back the Business . we have to follow accounting concept , one of them is Business Entity concept followed by also most all Business.
Proprietors capital is a liability in the business as well. But showing it as a loan might be correct from accounting standard view point but not logically. It's like choosing theory over practical approach.