Pay Advances / Employee Loans

How do I record Pay Advances to employees in Cashbook?

A payroll (wages) advance to an employee is usually a temporary loan by a business to an employee. i.e. the business is the lender and the employee is the borrower. With the introduction of Single Touch Payroll you can no longer account for these wages advances within Payroll. 

Steps to setting up accounts for recording Payroll Advances to employees:

1. Setup an Asset Account
2. Setup an Other Expense account. (linked to the Asset account)
3. Setup an Other Income accounts. (linked to the Asset account) 

1. Setup an Asset account.

• Click on the Chart toolbar icon.
• Click on the Assets tab.
• Click on the Add button.

2. Setup an Other Expense account e.g. Advance in Pay, linked to the Asset account. This account will be used when you pay an advance on the employee's pay/wages.

• Click on the Chart toolbar icon.
• Click on the Expenses tab.
• Click on the Add button.
• Add details for new other expense account Advances in Pay (see below):
  • Account Type: Other Expense
  • GST Category: 10. Non-reportable Payments
  • Balance Sheet Link: 505 Payroll Advances

3. Setup an Other Income account e.g. Advance Repayment, linked to the Asset account. This account will be use to withhold the advance from the employee's future pay.

• Click on the Chart toolbar icon.
• Click on the Income tab.
• Click on the Add button.
• Add details for new other expense account Advances in Pay (see below):
  • Account Type: Other Income
  • GST Category: 11. Non-reportable Receipts
  • Balance Sheet Link: 505 Payroll Advances

For example: A shearer Daniel Brown does not get paid until the end of the week but he has asked his employer for an advance in his wages of $200.

Step 1: Record Advance in Pay on Monday Cashbook (NOT in Payroll).

• Click on the Cashbook icon.
• Click on the Add button.
• Enter the payment transaction.
  • Type - Payment
  • Date - 12/08/2019
  • Reference -  EFT
  • Paid To - Daniel Brown
  • Gross Amount - 200.00
  • Code - 175 Advances in Pay
  • Note (Optional)

2. Pay Daniel's actual wages on Friday in Payroll:

• Click on the Payroll icon.
• Click on the employee Daniel Brown to highlight (blue).
• Click on the Select Employee button.

• Click on the Add Pay button.
• Enter pay information as you would normally. e.g number of hours, rate, allowances etc.
• Click on OK button 

• Click Yes to the following Information message:

3. Adjust wages transaction in Cashbook by the amount of the Advance in Pay.

• When the transaction opens up in Cashbook you will need to
  1. edit the Gross Amount Including GST. e.g. Net Pay is $1073.65. You need to reduce this by the advanced pay of $200.00. $1073.65 - $200.00 = $873.65. 
  2. add another dissection to the transaction. e.g. 085 Advance Repayment 200.00
• Click on the OK button to save.

An easy way to make sure that all Advances in Pay are paid back:

• Click on the Review toolbar icon.
• Select account from drop-down list. (i.e. the Asset account 505 Payroll Advances).
• The balance on this account should be zero.