Journal Entry For Loan Given To Employee
Loan given by a company or corporation to an employee is an advance payment to him / her. It is a Current Asset if it is used within one year, otherwise it is a Non Current Asset / Fixed Assets.
The Journal Entry to record loan payment is shown below:
Loan To Employees a/c / Advance To Employee (Mr.A) XXX
Cash a/c / Bank a/c XXX
(Loan Given To Employee)
At the end of the month, when this loan is deducted from Salary of the employee every month until it is fully repaid by the employee, then following Entry is recorded as shown below:
Salary (Mr. A) XXX
Advance To Employee a/c XXX
Cash a/c / Bank a/c XXX
(Portion Of Loan Is Deducted From Salary Of Employee, Mr. A)
For Example, if the company gives a loan to an employee, Mr. A of Rs. 500000. The Salary Of Mr. A is Rs. 100000. Every Month Rs. 10000 is deducted from the salary of employee
When Loan Is Given To Mr. A
Loan To Employees a/c / Advance To Employee (Mr.A) 500000
Cash a/c / Bank a/c 500000
(Loan Given To Employee)
When the amount of Advance payment is deducted from the Salary of the employee, Mr. A, then following entry is recorded:
Salary (Mr. A) 100000
Advance To Employee a/c 10000
Cash a/c / Bank a/c 90000
(Portion Of Loan Is Deducted From Salary Of Employee, Mr. A)
Salary Account is recorded on Income Statement. Loan to employee or advance payment is recorded as a Current Asset on balance Sheet.
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