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Funds introduced by proprietor in company account

ADHIP KUMAR MISRA (ACCOUNTS MANAGER) (176 Points)

19 April 2022

Can the proprietor of a company give a loan to his proprietorship company ? Please clarify .

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7 Replies

Rama chary Rachakonda (Master in Accounts & high court Advocate) (8462 Points)
Replied 19 April 2022

The legal status of a sole proprietorship can be defined as follows: It is not a separate legal entity from the business owner.

ADHIP KUMAR MISRA (ACCOUNTS MANAGER) (176 Points)
Replied 19 April 2022

Ok thanks for the information .

CA Raj Doshi (Practising CA) (8944 Points)
Replied 20 April 2022

A person cannot lend money to himself. So the same is neither possible in books of accounts.

Eswar Reddy S (CFO- at NHTF) (58275 Points)
Replied 20 April 2022

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

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prasad Nilugal ( GST Practitioner & Accounts ) (14916 Points)
Replied 20 April 2022

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.

CA Raj Doshi (Practising CA) (8944 Points)
Replied 20 April 2022

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.

Eswar Reddy S (CFO- at NHTF) (58275 Points)
Replied 20 April 2022

Proprietor capital is just ledger only but actual funds will come in the form of Bank Balance or Cash and Cash equivalents..

Hope you know double entry concept

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