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Employee Loans

This article deals with making a Loan to an employee and then taking deductions for that loan in payroll. This is a special case issue where you have made a real loan, not just a driver advance. For example you sell a truck to an employee and he has agreed to pay for it with a fixed weekly deduction from his pay.

EMPLOYEE LOANS

ACCOUNTING PRINCIPLES:
When you make a loan to an employee you create an ASSET, the note for the loan. You can then either make deductions from the employee’s pay which will be treated by the program as payments on the loan, or manually enter payments on the loan. This same process can be used for a LOAN or for the sale of a truck to an employee.

INTEREST: Interest on the loan can be handled in one of two ways. If the payment is a fixed amount, the easiest way to handle the interest is to include the interest in the loan amount. The second method is to calculate the interest each week and then adjust the payment for it. We strongly recommend using the first method as the second is prone to calculation errors.

PROGRAM ENTRY

CREATE THE NOTE

The amount of the note is determined by how you are going to calculate the interest on the loan. If you are going to receive payment on a set schedule the easiest method (and our recommended method) is to calculate the interest for the loan and include it in the note amount.
For example:

    You have a loan for $10,000 for 5 years at 6% interest. The interest can be calulated using the Loan Payment Calulator under SPECIAL on the Income & Expense page. For our example the program tells us our payments will be $193.33. Now take that amount times the number of payments that will be made and setup your loan for that amount. So

    $193.43 * 60 = $11,599.80

    So you would set up your note for this amount.

If you are going to calculate the interest for each payment (note it is extremely easy to make a mistake using this method) you will set your loan up for the PRINCIPAL AMOUNT. For our example, this would be $10,000.

  • Click QUICK ENTRY/ASSET/PURCHASE
  • FROM ACCOUNT - Select the account you are taking the money from (this is one of your PAYMENT ACCOUNTS). If you are selling a truck which is already on your books see SALE OF TRUCK TO EMPLOYEE below.
  • TO ACCOUNT - enter the loan name. If you are going to have payroll deductions for this loan you MUST end the name with the word FEE.
    Example: LOAN JOHNS FEE.
    This is so the payroll will know how to handle this deduction.
  • DATE - enter the date you made this loan.
  • PRONUMBER - N/A
  • TRUCK NO. - N/A (this loan is for a truck, but it is not an Income or expense that you want assocated with the truck in P&L reports.)
  • AMOUNT - enter the amount of the loan.
  • Click the OK button to save the record.

The program will make 3 entries for this in the Income & Expense section. The first 2 are a Transfer where the money is transfered from the PAYMENT ACCOUNT to the ASSET(Loan) ACCOUNT. The 3 is a 0 amount transaction to create the ASSET account for the loan.

RECEIVE PAYMENTS

You can receive payments either manually or through Payroll Deductions. We will cover both ways here. First, let’s looks at taking a deduction from payroll.PAYROLL DEDUCTION:

  • Click ACCOUNTING/PAYROLL/SETUP from the menu bar.
  • In the DEDUCTIONS section select one of the Open Deduction boxes. Place a check in the box in front of it and enter the name of the loan in the Name box. If you will be taking these deductions weekly do not check the MONTHLY box, if you are taking them monthly check this box.
  • Click the SAVE button to update this record.

The program will now deduct the loan payment from the payroll and will apply the deduction against the Loan.

MANUAL PAYMENT ENTRY

QUICK ENTRY does not have an option for receiving payments on a loan so you will have to make this entry by hand. You will need to calculate the Principal and Interest portions of this transaction before you begin.

  • Click REGISTER/ASSETS and get the Balance for the loan account.
  • Calculate the INTEREST/PRINCIPAL portions of the payment.
      PRINCIPAL * INTEREST PERCENTAGE / NUMBER OF PAYMENT IN A YEAR

    So for our first payment from our example we would have -

      (10000*.06)/52 = $11.54 interest
      Payment of $193.33 - $11.54 interest leave Principal of $181.79.
  • This is entered as a SPLIT ENTRY in the Income & Expense section.
    • ProNumer = N/A
    • Truck# = N/A
    • Date = date payment was received
    • Type = SPLIT
    • Amount = The TOTAL of the payment. For our example $193.33.
    • Paid By = N/A
    • Payment Account = The account you deposited the payment into.
    • Charge To = SPLIT

    The Split Entry box will now appear on the screen. Click it to access the Split Enter screen and finish this transaction.

  • LINE 1
    • Charge To Account = The loan account.
    • ProNumber = N/A
    • Type = INCOME
    • Memo = a short memo if you want one.
    • Amount = The PRINCIPAL AMOUNT (from our example: $181.79)
  • LINE 2
      Charge To Account = Interest Income

    • ProNumber = N/A
    • Type = INCOME
    • Memo = a short memo if you want one.
    • Amount = The INTEREST AMOUNT (from our example: $11.54)

    CALCULATING THE INTERST MANUALLY

    While it is possilbe to use this method to adjust your payroll deduction each week it is time consuming and prone to calculation errors. It is strongly recommended that you use the fixed interest method outlined above. If you need to calculate the interest weekly it is better to do this manually, i.e. pay the employee and then have him pay the money back to you. You can do this ON PAPER, by showing a DRIVER ADVANCE for the amount of the loan payment. Here’s how to do this type of transaction.

    • Create a DRIVER ADVANCE in the INCOME & EXPENSE page for the amount of the loan payment.
    • Now follow the steps above to enter the payment manually. Show the payment as deposited into the same account that you took the money from in the DRIVER ADVANCE above. To simplify reconciling your bank statements use your CASH account for this purpose.

    SELLING A TRUCK TO AN EMPLOYEE

ACCOUNTING PRINCIPLES

The sale of your truck should be handled in the normal manner. Show the value of the truck coming in to you cash account and then transfer it from there to the employee as the offset for the note.

PROGRAM ENTRY

Use the Quick Entry and select ASSET/SALE to make the sale. Enter the name of the ASSET in the FROM box, enter the CASH account in the TO box. The program will then make the appropriate entries for you.