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:
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.