Payable to Related Parties
Money you owe directors, shareholders or sister companies, shown separately on the Balance Sheet as the auditor requires.
In detail
Money owed to a director, shareholder, sister company or family member is kept apart from ordinary trade creditors because the auditor must disclose related-party balances and the IRD looks at them closely for disguised capital or income. A director's short loan to tide the business over a slow month is the common case: the bank account is debited and this ledger credited, and repayment reverses it. Interest, if any, should be agreed in writing and taxed with TDS like any other interest. Lumping such loans into Creditors or into Share Capital hides them from the disclosure note and can misstate the company's equity.
Formula
Closing balance = Opening + Loans and bills from related parties - Repayments
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Bank Account | Rs 3,00,000 | |
| Payable to Related Parties | Rs 3,00,000 |
How to record it in BRAccount
- 01Keep a signed loan note stating amount, interest and repayment terms.
- 02Go to Invoicing > Journal Entry > New dated the receipt.
- 03Debit the bank account and credit Payable to Related Parties; name the person in the remark.
- 04Submit. The entry below posts.
- 05Repay by Journal Entry: Dr Payable to Related Parties, Cr Bank, deducting TDS on any interest.
- 06List the balance for the auditor's related-party note from Financial Reports > General Ledger.
When to use it
Post by Payment Entry or Journal Entry for director loans and related company dues. Keep it apart from ordinary Creditors.
Example from the demo books
Dr Bank Account Rs 3,00,000, Cr Payable to Related Parties Rs 3,00,000 for a short loan from the managing director.