One of my past employee has made his house. Due to ignorance of making proper budget of construction of house for reducing cost, his construction work has not completed. So, he needs money for completing the house.
He has gone to different banks for getting debt. But, due to lack of big resources of income, he is unable to get the loan from any bank. Now, I am interested to help him. But, I do not want to give him as loan. I am interested to him as "advance to my employee". Advance to employee is different from loan. In advance to employee, I will get return by taking his services as employee. I will not take interest on my advance.
So, it is necessary to record it by passing the accounting entries.
Accounting Entries of Advance to Employee :
In My Books
1. When I will give Advance to My Employee
Because I did not receive the service from my employee. So, all the advance money will be my asset. Any increase in my asset will be debit in my own books. So, I will record in my books. Because my cash will go to the pocket of my employee. So, cash will decrease. Cash is also my asset. So, any decrease in the asset will credit in journal entry.
2. When My Employee does his job in my business
At that time, I will not pay the salary because I have paid the whole salary advance. So, I will deduct salary from given advance. Salary to Employee will be debit because it is my expense. Expense is decrease in the capital. I will credit the advance to Employee instead cash account credit because My past asset "Advance to Employee" will decrease.
Deep Understanding of Debit and Credit
In first journal entry, I have shown green the color of debit and credit as red. In second, journal entries, I have shown debit and credit both in red color. Why? Because debit is not sign always increase of asset or liability. It is sign of increase of asset and also decrease in capital. That is the reason in first journal entry it is increase of asset, so, it is green. and in second journal entry, it is decrease of liability, so, it is the red.
He has gone to different banks for getting debt. But, due to lack of big resources of income, he is unable to get the loan from any bank. Now, I am interested to help him. But, I do not want to give him as loan. I am interested to him as "advance to my employee". Advance to employee is different from loan. In advance to employee, I will get return by taking his services as employee. I will not take interest on my advance.
So, it is necessary to record it by passing the accounting entries.
Accounting Entries of Advance to Employee :
In My Books
1. When I will give Advance to My Employee
Because I did not receive the service from my employee. So, all the advance money will be my asset. Any increase in my asset will be debit in my own books. So, I will record in my books. Because my cash will go to the pocket of my employee. So, cash will decrease. Cash is also my asset. So, any decrease in the asset will credit in journal entry.
Advance to My Employee Account Debit
Cash Account Credit
2. When My Employee does his job in my business
At that time, I will not pay the salary because I have paid the whole salary advance. So, I will deduct salary from given advance. Salary to Employee will be debit because it is my expense. Expense is decrease in the capital. I will credit the advance to Employee instead cash account credit because My past asset "Advance to Employee" will decrease.
Salary to My Employee Account Debit
Advance to My Employee Account Credit
Deep Understanding of Debit and Credit
In first journal entry, I have shown green the color of debit and credit as red. In second, journal entries, I have shown debit and credit both in red color. Why? Because debit is not sign always increase of asset or liability. It is sign of increase of asset and also decrease in capital. That is the reason in first journal entry it is increase of asset, so, it is green. and in second journal entry, it is decrease of liability, so, it is the red.
how would you write off the account if the employee went AWOL
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