Accounting for Employee Loans or Advances

In QuickBooks, set up a payroll item (type = deduction) called Employee loans. Setup an Other current asset account called “Employee Loans”. Use “write checks” to loan the employee money and code to account “Employee loans”. Edit the employee information and add the payroll item “employee loans” to the additions, deductions and company contributions box. Enter the per pay period amount to withhold from each paycheck and the total amount of the loan, if it’s a set amount. CAUTION: The loan deduction is a calendar year limit. If the loan is not repaid by December 31st, you will need to make adjustments. January 1st, QuickBooks FORGETS the withdrawals made against the loan in prior years, and begins all over again. At the end of December, for each employee that has a loan balance, before the first paycheck of the new year, adjust the amount to repay for the new year. If the loan has been repaid, delete the “employee loan” item from the employee information window.

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