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Frequently, the need arises to provide an employee with a payroll advance, perhaps because s/he has run out of money or has experienced an emergency which requires more cash than is normally available.  QuickBooks provides a method for advancing money and later recovering it.

All payroll functions are based on Items.  Open the Payroll Item list.

Double clicking List and then double clicking Payroll Item List will produce the following:

You will see that QuickBooks ships with an item called Advance.  By default, Advance is mapped to Payroll Expenses.  I think a more accurate mapping would be to consider Payroll Advance as an asset.

Using the dropdown arrow, the account can be changed to a new general ledger account called Employee Advances.  This requires adding a new GL account.

Double click List and choose Chart of Accounts.  Click the Account button and choose New > Other Account types > Other Current Assets > [Employee Advances] (and number, if you use numbers) > Save and Close.

Then your Chart of Accounts will look like this.

Now you are ready to issue an Advance to your employee, Carol Walker through the Payroll module.  You create a paycheque like this.

Do not enter Hours.  Remember to set Other Payroll Items to 0.00 before you Save and Close.  Notice the top right corner which shows that the company is now owed $2,000 from Carol Walker.

Next, to confirm that QuickBooks has accurately recorded the transaction, go to Reports > Employees and Payroll > Payroll Summary as shown.

The next time that Payroll is run, the program will prompt you that Carol Williams has an outstanding advance.  When you process her paycheque, add a line in the Earnings section for Advance.  Do not include hours on that line.

To make sure that the books accurately reflect the recovery of the advance, check the Asset section of the Balance Sheet or Trial Balance as at the end of the payroll period.  Note that Advance does not show up.

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