Owen, thank you for your reply and for additional information.
Ok, so some further information....
100 x £1 shares issued to two shareholders (50 shares to each).
At date of incorporation, £25 from each shareholder was put into the company (and as such, opened the company bank account).
Q1. I'm not sure what the implication of this is? Do the shareholders owe £25 each to the company?
How is this recorded in the balance sheet?
If you have only paid £50 out of £100 for shares issued then £50 remains receivable at the year end (balance Sheet date). The entries in your balance sheet for unpaid called up share capital are
DR Called up share capital unpaid
CR Called up share capital
Is it prudent to invest a further £25 each?
I would invest a further £25 each. For accounting purposes treat this as cash paid for the other 25 shares each at balance sheet date or reduce amounts owed on director’s account.
In my version of the balance sheet presented to you I had reduced the director’s account by £100 in the absence of information now provided.
On the 9th Feb 2014, the company purchased an set of microphones on a 12 month interest payment plan. The cost of this item was £598.50.
The first direct debit payment of £53.86 was taken from the company account on 10th March 2014.
I initialled included the full amount as "cost of sales". Following your in-depth answer, I now realise that the company still owes £544.64 to the supplier at the end of 2013-14 (our accounts are made up to 5th Apr).
Q2. Do we include the 544.64 under "creditors"
Q3. Does this item now become an asset. I'm assuming yes. But how do we then balance the book?
You should move the cost price of microphones from cost of sales to tangible assets in the balance sheet and show amount still to be paid as creditor at the year end.
Your entries to reflect purchase of set of microphones are
DR Tangible assets £598.50
CR Bank account £53.86
CR Creditors £544.64
As company director, I purchased a second electronic item, on behalf of the company, through my personal self-employed bank account. To reimburse myself, I invoiced the limited company for the full amount. The amount was £150. I am assuming this item also becomes an asset of the company?
I presume you have been paid for this item. Depending on what you think is the useful life of this electronic I would be tempted to write off this sum as an expense in the year and not capitalise it.
If you decide to capitalise it then it is a tangible asset.
Having revisited the figures, I'm confident that the Directors Loan account amounts to £2460 as previously stated.
I hear what you say... your accounts do not balance unless you do this adjustment to clear the difference between total net assets and shareholders funds .
I understand your concern about operating at a loss. We are in the entertainment industry and it was necessary to invest in our first year to compile our promotional material. I'm happy to say that in yr2 we are now operating in profit.
Look forward to hearing from you and really appreciate all your help.
I hope this is helpful and answers your question.