Write off negative Payable account to Shareholder

Question

Hi, I have a negative balance in the account payable to Shareholder, that means business have paid too much.. now, as the shareholder will not reimburse the amount to the business, i would need to write off the balance of the account payable. Is it possible to write off the balance with capital contribution account?
Thanks

Answer 1

Hello 

I think first we need to determine on what account was the shareholder paid. That means the purpose was to pay a loan from shareholder but the company ended up in paying more than the loan amount. 

In general what ever is paid to the shareholder in addition to any of his services is a distribution to shareholder. So if there is no chance of getting the excess amount back from shareholder then simply adjust the negative payable balance against the Distributions to shareholders. 

 

The general entry would be 

Distribution to share holder (dividend) .......... debit 

         Account Payable to shareholder ...................credit

 

I believe its not appropriate to adjust against the capital contribution account as it would mean return of shares or capital. that would involve more complications.