Saturday, July 23, 2011

What is a Shareholder or Owner's advance?

Accountants often face an issue in their business with "Shareholder/owner's advance" in small private companies. In general, shareholder advance are small loans (however, they can be quite large) made to the owner for personal use and legally need to repaid to the company by the end of the year or some other time period.

Basically, the owner has to pay the loan back to the company at the end of the year so the company's net income income can be properly submitted to the authorities for tax purpose (most of the time the shareholder's advance account needs to have a balance of zero at the end of the year).  The most interesting situations arise for accountants when the other cannot pay the amount back by the end of the year.

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