Brief: Review and Correction of Director’s Loan Account (DLA) Objective
To produce a corrected director’s loan account ledger and supporting report, rectifying extensive historical misallocations made by the previous accountants, and to legitimately and lawfully reclassify entries that were incorrectly posted to the DLA.
The end objective is a material reduction of the DLA balance (target: 90–95%), based on accurate accounting treatment and evidential review.
Background
I have undertaken a line-by-line review of the director’s loan account. While a small number of entries may relate to genuine personal expenditure (e.g. limited car-related costs and occasional food purchases), the overwhelming majority of entries are clearly misallocated.
The previous accountants appear to have used the director’s loan account as a default suspense or dumping account, placing any transaction that was not immediately “tick-boxable” into the DLA without review, justification, or query.
This approach is both professionally negligent and accounting-unsound.
Nature of Misallocations Identified
Items wrongly posted to the director’s loan account include, but are not limited to:
Legitimate business expenses
Long-distance business travel
Product samples and testing purchases
Display, marketing, and promotional materials
Charity donations made in a business context
Client and supplier Christmas gifts
These costs are prima facie business expenses and should never have been treated as director withdrawals.
Vehicle & Travel Costs
Even entries relating to vehicle and fuel costs are incorrectly treated:
Mileage was not claimed, therefore the correct treatment is:
legitimate business running costs or
mileage allowance
Posting these costs to the DLA is categorically incorrect, and this has already been acknowledged as such.
Failure of Prior Accountants
At no point did the prior accountants:
Raise clarification queries
Request supporting explanations
Apply professional judgement
Reliance on a supposedly qualified firm has resulted in a grossly unprofessional and misleading accounting position.
Required Work Scope
You are asked to:
Reconstruct and correct the director’s loan account
Reclassify misposted items to their proper accounting categories where evidence or reasonable business purpose exists
Prepare a supporting narrative report explaining:
Why the original DLA balance was materially overstated
The rationale and accounting basis for each category of reallocation
Identify any residual genuinely personal items, if any
Produce a defensible, compliant final DLA balance
Settlement Position
Given the scale and arbitrariness of the misallocations, proposing a settlement figure based on the original DLA is entirely inappropriate.
However, on a strictly without-prejudice basis, I consider a final director’s loan balance of £1,000–£1,500 to be the absolute maximum, and even that is generous given the errors identified.
Any higher figure would rely on demonstrably incorrect accounting.
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