Recording Payroll Advances

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The following is the most efficient way to pay and account for a Payroll advance in 21st Century Accounting.

Creating an Asset Account

1. Create an asset account in your Chart of Accounts called “A/R - Payroll Advances” (if you don”t already have one). Be sure to put the account in the Current Asset category.
2. Create a Deduction factor in Payroll called “Advance”. The deduction should NOT be subject to any taxes.
Employee contribution method is “Amount per pay period”.
G/L Account is set to the asset account in step 1. Ignore any warning messages about the account.
3. Configure employees who may receive advances to have the “Advance” factor.
4. et the default amount to zero.

Issuing an advance check

1. Go into Calculate Payroll.
2. Select the pay frequency containing the employee who is getting the advance.
3. Select that employee and press F2.
4. Zero out all other income and deduction factors. Be sure to zero out any accrual hours (e.g. sick or vacation), as this paycheck is not intended to reflect time worked.
5. Find the “Advance” deduction factor and enter a negative amount for the amount of the advance check. Net pay should reflect that amount, and the tax and deduction fields should all still show zero.
6. Print the check and close the pay period. The asset account in the COA will be debited to reflect the fact that there is a receivable from the employee, while the bank account is credited to reflect the check amount. None of the tax liability accounts are involved.

Paying back the advance

In subsequent normal Payroll runs, you can have the employee pay back the advance. When the pay is calculated for the employee who received the advance, enter a positive number in the “Advance” factor to show that pay is being deducted. Taxes will be calculated based on the employee”s normal earnings, the payback on the advance is deducted from the Net pay after taxes. After the checks are printed, the asset account will be credited for the amount of advance paid back on the check.
Scheduled payback from empolyee

If it is desirable to have a scheduled payback from the employee(e.g. pay back the advance in installments), you can configure the employee and put in a number for the amount that is to be repaid on each pay check. That amount will automatically show in each subsequent paycheck. You will have to manually remember when to remove that factor (or set the amount to zero) when the entire advance has been repaid.
Benefits of paying advances in this way

A nice feature of paying advances in this way is that the “Advance” deduction shows on the earnings report for employees only when the value is nonzero. Therefore, any employee who either needs to repay an advance or has overpaid on an advance (due to a Payroll entry mistake) will show the “Advance” factor on the earnings report. Once an advance is repaid, the “Advance” factor no longer shows on the earnings report for the employee. In the G/L, advances show up as assets until they are repaid, reflecting the fact that a pay advance is a loan secured by the promise of repayment earned through future work.

Only one check may be issued per employee in any given pay period, so it may seem cumbersome to have to close a pay period in order to issue a single advance check. However, 21st Century Accounting allows detailed reports to be printed for closed pay periods, and also allows easy voiding of paychecks in closed pay periods. Therefore, after concluding the printing of checks for a pay period and printing the Payroll register, the pay period should be closed immediately.

After the pay period is closed, opening a new pay period for a special check (e.g. an advance) requires nothing more than running the Calculate Payroll module.