Is Due to Shareholder a Debit or Credit?
Due to shareholder is a credit. The company owes the shareholder money, so the account is a liability that increases with a credit when the shareholder puts funds in and decreases with a debit when the company repays. Its normal balance is a credit, and it is reported on its own Schedule L line as a loan from shareholders.
- Account category
- Liability
- Normal balance
- Credit (Cr)
- Increases with
- Increase (Cr)
- Decreases with
- Decrease (Dr)
- Financial statement
- Balance sheet
Classifying one account is easy. Ledger IQ classifies the whole trial balance.
Try it freeDue to 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 | 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 (the account this page is about) | 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 |
|---|---|---|
| Cash | 20,000.00 | |
| Due to shareholder | 20,000.00 |
| Account | Debit | Credit |
|---|---|---|
| Other operating expenses | 3,400.00 | |
| Due to shareholder | 3,400.00 |
| Account | Debit | Credit |
|---|---|---|
| Due to shareholder | 5,000.00 | |
| Cash | 5,000.00 |
Why it works that way
The shareholder put money in and expects it back, so the company has an obligation. Obligations are liabilities and liabilities are credits. The account also grows when an owner pays company bills from a personal account, which is how most of these balances actually arise.
Loan or capital contribution
This is the decision the account depends on, and it changes real outcomes. A loan is a liability, repayable without tax consequence to the shareholder, and on an S corporation it creates debt basis that can let losses through when stock basis has run out. A capital contribution is equity, increases stock basis, and cannot simply be repaid: money coming back out is a distribution.
Clients rarely document the difference, so the preparer ends up deciding from the facts. A loan should look like a loan: a note, a rate, a maturity, and repayments that happen. Money put in during a bad year with no paperwork and no repayment is usually capital in substance, whatever the general ledger calls it.
The S corporation basis angle
On an S corporation the distinction matters most when losses exceed stock basis. Debt basis from a direct shareholder loan can absorb further losses; a loan guaranteed by the shareholder but made by a bank cannot, because a guarantee is not an economic outlay.
Repayments of a loan where basis has been reduced by losses can also produce income to the shareholder, which surprises clients who think of repayment as simply getting their own money back. Form 7203 is where this gets tracked, and the trial balance is where the conversation starts.
Presentation on the return
Loans from shareholders have their own Schedule L line on the corporate returns, separate from notes payable and separate from due from shareholder. Report the two owner accounts separately rather than netting them, since the return asks for each side.
On a 1065, partner loans also flow into item K of the K-1, where the recourse and nonrecourse split affects each partner's basis and loss limitation.
Where it fits in the accounting equation
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Schedule L line 19, loans from shareholders |
| Form 1120S | Schedule L line 19, loans from shareholders, and relevant to debt basis |
| Form 1065 | Schedule L line 19, all nonrecourse loans, or line 20 by type, with Schedule K-1 item K |
Common questions
Is due to shareholder a debit or credit?
A credit. It is a liability for money the company owes its owner, so funding the company credits the account and repayment debits it. A debit balance means the company has repaid more than it borrowed, which points to a loan recorded in the wrong direction or a repayment that was really a distribution.
Is a shareholder loan the same as a capital contribution?
No. A loan is a liability that can be repaid tax free and, on an S corporation, can create debt basis. A contribution is equity that increases stock basis and can only come back out as a distribution. The documentation, the interest and whether repayments actually happen decide which one it is in substance.
Is repaying a shareholder loan taxable?
Repaying a bona fide loan is generally not taxable. The exception is an S corporation loan whose basis has been reduced by losses, where repayment can trigger income to the shareholder. Form 7203 tracks that basis, which is why the loan history matters as much as the balance.
Where does a shareholder loan go on Schedule L?
On the loans from shareholders line of the corporate returns, reported separately from bank debt and separately from amounts the shareholder owes the company. On a 1065 the partner loan also feeds item K of the K-1.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 17, 2026.