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What is the entry when a company lends money to an employee?

Author:
Harold Averkamp, CPA, MBA

Definition of Employee Loan

When a company lends money to one of its employees, the company is reducing its Cash and increasing another asset such as Other Receivables-Advances to Employees (if a note is not involved) or Notes Receivable from Employees.

Example of Employee Loan

Assume an employee’s car needs an $800 repair and the employee does not have the money. The company employer agrees to give the employee an $800 advance to pay for the repair. The accounting entry made by the company in its general ledger accounts is as follows:

  • Debit to Other Receivables-Advances to Employees for $800
  • Credit to Cash for $800

When the company earns interest on an employee loan or advance, the company should credit the amount earned to Interest Income and debit Cash or Other Receivables.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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