How does the partner’s current account work on the company’s balance sheet?

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The partners may be required to lend funds  the company in the form of payments into a dedicated account, whether during its creation or for the development of its activity. We are talking about an associate current account .

However, this payment has implications from an accounting point of view. We then speak of a partner’s current account on the balance sheet . This opens up both rights and obligations for the company and the contributing partner.

MINI-SUMMARY  :

What is a partner current account on the balance sheet?

What is the associate current account used for?

Where is the current account associated with the balance sheet?

associated current account

What is a partner current account on the balance sheet?

The partner’s current account in accounting is the translation, on the company’s balance sheet, of a payment made by one of the partners to the company, in order to strengthen its equity.

It is a loan or an advance granted by the partner to the company in which he owns shares. The partner then has a claim on the company, which incurs a debt.

This contribution can take two forms:

it can be a contribution in cash , that is to say the payment of a sum of money or;

a temporary waiver by the partner to collect sums that the company owes him such as dividends for example.

Important  : this contribution in current account is to be distinguished from the contribution in share capital for the incorporation of the company. Moreover, it can come in addition to the payment of the capital during the creation of the company or intervene at any time.

In addition, the opening of a shareholder’s current account on the balance sheet is only possible if the capital is fully paid up.

The partner’s current account can be blocked or not , remunerated or not according to what is provided for in the articles of association of the company. Similarly, in the absence of precision in the articles of association, the partner may request the reimbursement of his current account at any time as long as he is in good faith, i.e. his request does not jeopardize the sustainability of the company.

Conversely, if the he company is going through financial difficulties, the partner can abandon the current account and thus waive reimbursement.

What is the associate current account used for?

Entering a partner’s current account on the balance sheet has advantages for both the company and the partner.

Concerning the company, the presence of a partner’s current account allows it to finance its own funds without having to resort to a bank loan or at least to limit the amount requested from the bank and to show the commitment of the partners. in the project.

In addition, it is a flexible solution since it is not necessary to hold a general meeting or to change the articles of association, contrary to a modification of the share capital . The company may also deduct interest paid to partners from its taxable income.

In the event of temporary cash flow tensions, the associate current account is also a quick solution to meet daily needs, while the situation is restored.

For its part, theassociate may request reimbursement at any time from the company, unless otherwise provided. He can receive remuneration for the sum brought in the form of interest, which can represent an interesting investment for him.

Where is the current account associated with the balance sheet?

On the balance sheet, the partner’s current account is recorded as a liability of the company . Indeed, it is a resource in the form of a loan, therefore a debt in the same way as a bank loan.

Its recognition varies according to the current account terms.

Current account type

Accounting for the partner’s current account on the balance sheet

“Simple” current account

the amounts lent are recorded as liabilities in a debt account;

any interest is recorded in a “miscellaneous financial loans and debts” account

Current account “blocked”

the amounts lent are recorded as liabilities but at the top of the balance sheet as equity  ;

any interest is recorded in an “other equity” account if it remains blocked or “miscellaneous financial loans and debts” when paid.

The partner’s current account on the balance sheet is therefore found in account 455 called partner-current accounts.

In principle, the partner’s current account is in credit since it is the company that owes money to the partner. Therefore, we must not find a partner’s current account on the asset side of the balance sheet , because that would mean that it is the partner who has borrowed from the company. However, this is prohibited except in rare exceptions strictly provided for by law.

 The associate current account on the balance sheet is a very widespread practice. Generally, the accountant opens one for each partner making this type of contribution. However, the associate’s current account should be clearly distinguished from a bank account. This is a purely accounting concept . Moreover, if this mode of equity financing offers many advantages, the partner however takes the risk of not being able to recover his advance in the event of the company’s financial difficulties.

 

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