Receivable from Related Parties
Money owed to you by directors, sister companies or shareholders, shown separately on the Balance Sheet as the auditor requires.
In detail
Receivable from Related Parties holds money owed to the company by its directors, shareholders, sister companies or the owner's family, kept apart from ordinary Debtors because the auditor and the Companies Act require related party balances to be disclosed separately. A short loan to the director's other company, an advance to a shareholder, or goods supplied to a sister concern on account all sit here. The IRD looks at these closely, since money moving to related parties can disguise dividends or hidden profit, and interest-free loans may be deemed to carry interest. Keep a written agreement for each balance and clear it within the year where possible; a balance that grows every year invites questions.
Formula
Balance = Loans and advances given to related parties + Interest charged - Repayments received.
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Receivable from Related Parties | Rs 2,00,000 | |
| Bank Account (rename me) | Rs 2,00,000 |
How to record it in BRAccount
- 01Record the loan agreement with the related party, including the interest rate and repayment date.
- 02Go to Invoicing > Journal Entry > New; debit this account, credit the bank, and name the party in the remark.
- 03Submit. The entry above posts for a short loan to the director's other company.
- 04Post interest due by Journal Entry to Interest Income and repayments by Payment Entry to the bank.
- 05At Ashadh end, give the auditor the list of balances for the related party note.
When to use it
Post by Payment Entry or Journal Entry for loans or advances to related parties. Keep it separate from ordinary Debtors.
Example from the demo books
Dr Receivable from Related Parties Rs 2,00,000, Cr Bank Account Rs 2,00,000 for a short loan to the director's other company.