Using this method, your employee must be set up as both a customer and an employee. Their Employee Receivable deductions must be entered as credits in Accounts Receivable after each payroll is processed. Employee receivables will actually be part of your Accounts Receivable balance and will be tracked using normal accounts receivables procedures and reports.
Your accounting flow will be as follows: A sales invoice is entered using a Billing Code set up to credit the appropriate account, in this example "Tools & Supplies", while Accounts Receivable is debited. When a deduction is made in payroll, a wash account is credited. When the credit is entered in the customer’s account the wash account is debited and Accounts Receivable is credited.
If you don’t have a GL account called AR Wash, set one up now by going to Company → Enter Chart of Accounts. Click Add New and enter as shown:
Make sure your employee is also set up as a customer.
Next, you'll set up Billing Code. Unless your employee is buying the same thing a customer would, you will need to set up a billing code to handle the transaction. In this scenario, we are going to collect money for tools purchased on the company account. Go to Sales → Enter Billing Codes.
- Make the Code whatever you wish.
- Enter a description.
- Make the Type "Other".
- Enter the account you need to credit for the Income Account.
- You don’t need to enter anything in any other fields.
Now you need to set up a Payment Method. To set up the Payment Method, go to Receivables → Payment Methods and click Add New.
To set up the Deduction, go to Employees → Additions and Deductions. Set up a Deduction called "Employee Receivable" that will be used for the payroll deduction.
- Type will be Deduction
- Method will be Flat Amount
- Vendor should be blank
- Liability Account would be the AR Wash account
- Limit Type should be Declining Balance
- Reporting Type should be None
- No items should be checked in Taxes That Apply To This Item.
To record the loan or sale to the employee, enter a Sales Invoice for the amount owed by the employee using the appropriate Billing Code. You may wish to enter the Vendor, Invoice # and date of Invoice in the item's Description to make backtracking easier.
To setup the deduction under the employee, go to Employees → Enter Employees and choose the employee. Click Edit and then click the Payroll tab. Using the drop-down list in the Addition/Deduction section choose the Employee Receivables deduction, enter the amount (as a negative number) you want to deduct from each check under Rate and the amount of the loan under Limit.
In the example below $20 will be withheld from the next check and the limit will change to $159.87. The deduction will continue until the limit reaches zero. If the employee adds to his loan balance make note of the limit amount and add the amount of the new loan to the current limit. In the example below if the employee borrowed another $50.00 we would change the Limit amount to 229.87.
On a regular basis, payroll deductions for receivable payments need to be recorded in Accounts Receivable to reflect on the A/R reports and clear the A/R Wash account. Go to Employees → Reports → Payroll Liability Report.
Set the Type to By Employee, enter the From and To dates for the desired time period, choose None as the Reporting Type, and enter your AR Wash GL account number for Account.
This report will show you any transactions in payroll that occurred in the specified time period that hit the AR Wash account.
Using this report, go to Receivables → Enter Payments and choose the correct customer. Enter the appropriate date, choose AR WASH for the Payment Method, the Check # field defaults to Credit, but can be changed to reflect the payroll period as shown, then enter the amount shown on the report for this customer/employee.
After the above steps have been completed for all affected employees the following should be true:
- Receivables/Display Statement balance should match the limit in the Employees/Enter Employees/Payroll Limit field.
- AR Wash GL account balance should be zero.