Monday, June 27, 2011

QuickBooks: Tracking Employee Advances or Loans

Tracking employee advances or loans in QuickBooks on future paychecks is a must for companies with a policy that allows giving employees advances/loans for personal reasons.

There are three ways in which to record an employee advance or loan:
1. Including it with the employees regular paycheck
2. Writing a regular check
3. Giving the employee cash from the company Petty Cash account

Step 1 – Create an Other Current Asset Account to track employee advances/loans
The first thing that you need to do – or have in place – is an Other Current Asset type account in your QuickBooks Chart of Accounts to track the money that is given to the employee.

If you need to create the account:
1. From the Lists menu -> choose Chart of Accounts
2. Click the Account button at the lower left -> choose New
3. Click the radio button next to Other Account Types -> and from the drop down menu choose Other Current Asset -> click the Continue button
4. Complete the details for the account -> Account Name = Employee Advances/Loans -> Account Description = To record employee advances or loans and repayments on future earnings.

Important Note: If your company frequently provides employees with advances on future earnings, create sub-accounts for each employee advance or loan; including the employee name and loan date in the account name.

Issuing an Advance or Loan to the employee as part of his or her regular paycheck.


If you want to provide the advance or loan money with the employee’s regular paycheck you will need to have in place or create an “Addition” type payroll item to record the money given to the employee.


If you currently don’t have an item in place, you will need to create one.
1. From the Lists menu -> choose Payroll Item List
2. Click the Payroll Item button at the lower left -> and choose New
3. Choose Custom Setup -> and click Next
4. Click the radio button next to Addition -> click the Next button
5. In the Name field, use a generic title such as Employee Advance or Loan. Click the Next button.
6. On the Expense Account window, using the drop-down menu, choose the appropriate “Advance” account (the Other Current Asset) -> click the Next button
7. On the Tax Tracking Type window, select None and click the Next button.
8. On the Taxes window, there should be no check marks -> click the Next button
9. On the Calculate based on quantity window, select Neither -> click the Next button
10. On the Gross vs. Net window, select net pay -> click the Next button
11. On the Default rate and Limit window, you can either leave both fields blank OR you can enter the full amount of the advance or loan in the first box -> click finish.

When you create the employee’s regular paycheck, from the Other Payroll Item box, select the “Addition” payroll item and enter the dollar amount.

Providing an advance or loan by writing a check.


Create an entry for the employee in the Vendor Center or the Other Names List, use this newly created name when completing the QuickBooks Write Checks window and from the Expenses tab, select the appropriate Employee Advance/Loan account from your Chart of Accounts.

Giving the employee cash from the company Petty Cash Account.


You’ll want to make sure that the employee’s name exists in either your Vendor Center or in the Other Names List. Open your Petty Cash Account register, select the Vendor or Other Name entry, enter the dollar amount given to the employee and select the appropriate “Advance/Loan” listing in your Chart of Accounts.