Journal Entry for Employee Advance

Employee advance is a type of cash that an employee borrows from company in a short period of time. The employee advance cash from the company for business purpose or personal use. The funds can be used for a variety of purposes, including paying for unexpected expenses, paying for small business expenses, or purchasing any items.

While employee advances can be a helpful tool, it is important to understand the terms and conditions before taking out the cash. When used responsibly, employee advances can be a great way to get the financial assistance you need. Advance to employees is usually in the form of salary paid in advance.

In the case of advance salary, the employee has not provided services for the entire month. Therefore, the company has not yet accounted for the expense. Advances salary are reported as current assets on the balance sheet instead of expenses.

Advance to employees represents the amount of money that an employee owes to a company for services to be completed in the future. This amount is reported as a current asset on the balance sheet because it will be converted into an expense within a year.

Advances to employees are not reported as expenses on the income statement because they have not yet been incurred. The company will recognize the expense when the employee renders services for which he/she has received an advance. At that time, the amount will be deducted from the advance recorded as a current asset on the balance sheet and recognized as an expense on the income statement.

Journal Entry for Cash Advance

The employees advance the cash from the company before completing service, so it must be recorded as the current assets on the balance sheet.

The journal entry is debiting Staff Advance and crediting cash.

Account	Debit	Credit
Staff Advance	XXX
Cash		XXX

The staff advance is recorded as the current assets on the balance sheet. The company expects to reverse the advance when staff makes pay back the money they borrow.

Example

Mr. A is an employee who works for a company. He has a mission to travel to the province to work for the client. He has an advance cash amount of $ 500 from the company to spend during the trip. After the mission, Mr. A spent $ 400 on the hotel and he returns cash $ 100 to the company. Please prepare journal entry for cash advance.

The employee advances cash from the company. It is not yet the expense, company needs to record it as the current asset.

The journal entry is debiting staff advance $ 500 and crediting cash $ 500.

Account	Debit	Credit
Staff Advance	500
Cash		500

When Mr. A comes back, he needs to clear cash advances with the company. The actual expense is only $ 400 and he needs to return $ 100 to the company.

The journal entry is debiting accommodation expenses $ 400, cash $ 100, and crediting cash advance $ 500.

Account	Debit	Credit
Accommodation Expense	400
Cash	100
Staff Advance		500