Q: When should we consider the cash flow of loans to stockholders? Should we do so at the time the loan is given or at the time it is converted to a distribution to the owner?
A: The cash outflow occurs at the time the loan is made. That is when the cash goes out the door, and so that is the time period in which to identify the loan and account for it as a cash outflow. If the loan is subsequently converted to a distribution, either in the current year or a subsequent year, that accounting event has no cash impact. The conversion takes place by a simple set of accounting entries, i.e., a debit to distributions and an offsetting credit to loans to owner / shareholder. The cash outflow occurred at the time the loan was made.
Because of the conversion possibility, it is always necessary to use the sum of a) loans to owners / shareholders and b) distributions to identify the actual cash impact that took place in the time period in question. For example, if the company recorded distributions of $200,000 and $93,000 of the distributions were a conversion of a shareholder loan to distributions, then the actual cash out the door would be $107,000.