There are two specific ways in which users can “record a loan to an Employee in QuickBooks“. One method relies on creating an asset account that will track the loan amount and payments received from the employee.
The other method uses the employee cash advance feature to record and track the loan. While the latter method is suitable for users who’ve charged interest on the loan provided, the former is better if there’s no interest charged.
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How to Record a Loan to an Employee in QuickBooks through an Asset Account
Asset accounts are reported to the balance sheet, hence they can store important data like loans provided to third parties. In QuickBooks, you have the option to create multiple types of asset accounts, but however, not all of them are appropriate for recording loans issued by the company. The amount in an asset account increases with every debit and decreases with every credit.
To record a loan to an employee in QuickBooks, you first need to create an asset account:
- From the Lists menu, select Chart of Accounts.
- Select the type of asset account:
- Other Current Assets – in case the loan will be paid by the employee after one year.
- Other Assets – in case the loan will be paid by the employee in the current year.
- Click on Continue.
- Enter both Name and Description for the asset account.
- Click on the Tax Line drop-down menu, and select the preferred Tax Type.
- Enter the loan amount you gave to the employee.
- Click on Ok.
Now that you have a newly created asset account on your hands, you should also create interest accounts to track the interest paid on the loan by your employee.
How to Record any Payment made against the Loan by the Employee
Recording loans provided to employees is an essential part of the business. However, there is no particular account or features through which you can track these loans and payments received against them. So creating an asset account for tracking becomes essential.
- From the Banking menu, click on Make Deposits.
- Once the Payments to Deposit window appears, associate a payment with the same.
- Input the name of the employee who’s paying back the loan.
- From the provided options, click on the asset account you created by following the method provided above.
- Enter loan repayment amount in the amount field.
- To record any interest payment, select the appropriate interest account.
- Create new lines to enter any additional fee received along with the loan repayment. Don’t forget to associate the fee with the appropriate account.
- Click on Save and Close.
You have successfully recorded both the loan amount and the repayment received against it. Through the asset and interest accounts, you can track the loan and interest payments made by the employee. For recording any additional fee, you should follow the method provided above, and select the appropriate account type.
How to Record Loans as Advance Payment to an Employee
In QuickBooks, users also have the option to record advance payments to employees. If you’re not charging any interest on the loan amount, then it is preferable to record the loan as simply an advance payment to your employee. Later, you can deduct the amount from the employee’s salary for loan repayment.
We recommend that you use this method only if the employee has borrowed a small amount as a loan without any interest payment, or if the employee will pay the loan amount within the current financial year.
If you wish to record loan and related repayments as advance payments, then follow the steps provided below:
- Go to the left panel, and click on Accounting.
- From Chart of Accounts, Hit New.
- Click on Current Assets in the account type.
- Click on Employee Cash Advances in Detail Type.
- Hit Save and Close.
Once you’ve recorded the loan amount, you need to deduct the repayment amount from your future salary. This makes things easier for both you and your employee. To record a loan to an employee in QuickBooks or know how to set up a loan manager, get in touch with our QuickBooks Experts.