Directors of limited companies frequently draw money from their companies’ bank accounts without recording whether the money has been drawn as salary or a dividend in respect of their shares or repayment of money previously lent to the company by the director.
When money is withdrawn from the company in this way it is treated for accounting purposes as a loan by the company to the directors who have used the money. If the directors are not owed any money by the company this will result in the directors having an ‘overdrawn’ directors’ loan account. This means that the company is entitled to reclaim on demand the amount you as a director have ‘borrowed’ but not yet repaid to the company. Put simply you have created a debt which is owed to the company just like any other debt owed by a customer of the company.