Is Due From Shareholder a Debit or Credit?
Due from shareholder is a debit. The company is owed money, so the account is an asset that increases with a debit when the shareholder takes funds and decreases with a credit when they repay. Its normal balance is a debit, and it is reported on its own Schedule L line as a loan to shareholders.
- Account category
- Asset
- Normal balance
- Debit (Dr)
- Increases with
- Increase (Dr)
- Decreases with
- Decrease (Cr)
- Financial statement
- Balance sheet
Classifying one account is easy. Ledger IQ classifies the whole trial balance.
Try it freeDue from shareholder on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 48,200.00 | |
| 1200 | Accounts receivable | 86,400.00 | |
| 1250 | Allowance for doubtful accounts | 4,200.00 | |
| 1300 | Inventory | 72,500.00 | |
| 1400 | Prepaid expenses | 9,800.00 | |
| 1450 | Notes receivable | 15,000.00 | |
| 1460 | Due from shareholder (the account this page is about) | 12,000.00 | |
| 1500 | Equipment | 120,000.00 | |
| 1510 | Accumulated depreciation | 38,000.00 | |
| 1700 | Goodwill | 40,000.00 | |
| 1710 | Accumulated amortization | 8,000.00 | |
| 2000 | Accounts payable | 31,500.00 | |
| 2050 | Credit card payable | 6,300.00 | |
| 2100 | Accrued expenses | 11,200.00 | |
| 2150 | Payroll liabilities | 7,400.00 | |
| 2200 | Sales tax payable | 4,100.00 | |
| 2300 | Unearned revenue | 18,000.00 | |
| 2400 | Notes payable | 85,000.00 | |
| 2450 | Due to shareholder | 20,000.00 | |
| 3000 | Common stock | 50,000.00 | |
| 3100 | Additional paid-in capital | 35,000.00 | |
| 3900 | Retained earnings | 92,000.00 | |
| 3950 | Shareholder distributions | 45,000.00 | |
| 4000 | Sales revenue | 550,000.00 | |
| 4100 | Sales returns and allowances | 12,000.00 | |
| 4200 | Interest income | 1,200.00 | |
| 5000 | Cost of goods sold | 240,000.00 | |
| 6000 | Salaries and wages | 96,000.00 | |
| 6050 | Officer compensation | 60,000.00 | |
| 6100 | Rent expense | 36,000.00 | |
| 6150 | Insurance expense | 14,400.00 | |
| 6300 | Depreciation expense | 19,000.00 | |
| 6450 | Interest expense | 6,800.00 | |
| 6900 | Other operating expenses | 28,800.00 | |
| Total | 961,900.00 | 961,900.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Due from shareholder | 12,000.00 | |
| Cash | 12,000.00 |
| Account | Debit | Credit |
|---|---|---|
| Due from shareholder | 720.00 | |
| Interest income | 720.00 |
| Account | Debit | Credit |
|---|---|---|
| Shareholder distributions | 12,000.00 | |
| Due from shareholder | 12,000.00 |
Why it works that way
The company handed over cash and expects it back, so the company holds a receivable. Receivables are assets and assets are debits. Nothing complicated happens in the bookkeeping; the complications are all in whether the balance is really a loan.
The question every preparer has to ask
A shareholder loan is respected when it behaves like a loan. The factors that matter are the ones a court would look at:
- A written note with a maturity date
- A stated interest rate at or above the applicable federal rate
- Interest actually accrued, and ideally paid
- Repayments that actually happen
- A balance that goes down over time rather than up
A balance that grows every year, has no note, pays no interest and is never repaid is not a loan in substance. On a C corporation it can be recharacterized as a dividend, which is taxable to the shareholder and not deductible to the company. On an S corporation it is usually recharacterized as a distribution, which affects basis, or as compensation, which brings payroll tax with it.
What to do when it is not a loan
Reclassify it before the return goes out, not after a notice arrives. The entry moves the balance to distributions, or to officer compensation if the facts point that way, and on an S corporation both routes have consequences the client should hear about first: distributions reduce stock basis and can create gain if basis runs out, and compensation means payroll filings.
Where it lands on the return
Form 1120 and 1120S give loans to shareholders their own Schedule L line, and Form 1065 does the same for amounts due from partners. That is deliberate. Netting it against due to shareholder hides the position, and if a shareholder is owed money and owes money under separate arrangements, the two sides are reported separately.
Reporting it in other assets is not a presentation preference. It understates the line the return asks about by exactly that amount.
Where it fits in the accounting equation
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Schedule L line 7, loans to shareholders |
| Form 1120S | Schedule L line 7, loans to shareholders |
| Form 1065 | Schedule L line 5, loans to partners, with Schedule K-1 item L affected |
Common questions
Is due from shareholder an asset or a liability?
An asset, with a debit balance, because the company is owed the money. Due to shareholder is the opposite: a liability with a credit balance, where the company owes the shareholder.
Can I net due from and due to shareholder on the balance sheet?
Not if they are separate arrangements. Schedule L reports loans to shareholders and loans from shareholders separately, and netting them hides a balance the return specifically asks about.
What happens if the shareholder loan is never repaid?
It stops looking like a loan. The IRS can recharacterise it as a dividend on a C corporation, or as a distribution or compensation on an S corporation. Each outcome has a different tax cost, which is why the documentation and the repayment history matter more than the label in the general ledger.
Does the company have to charge interest?
Charging interest at or above the applicable federal rate is what makes the loan look like a loan. Below market or no interest brings the imputed interest rules into play, and the company may have to report interest income it never received.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 17, 2026.