This question came up on a discussion list that I belong to over the weekend and I thought “hey, what a great blog post and how to tip this would make”! So here goes!
I am bookkeeper for a construction company. Sometimes the workers purchase tools on the company American Express card and write TOC for “Take Out of Check” on the receipt. There are oftentimes material expenses for the company on the same receipt.
How do I record this? What they did before was to subtract the amount from the gross wages when called into ADP, so it’s kind of a pay advance. But don’t advances require the taxes to be taken out? Should I get check breakdown and subtract from net wages instead or treat as a loan?
- Dee Bradshaw from Accurate Bookkeeping Services said that the repayment by the employee should be a deduction from Net Wages.
- Laura Lincoln from Sound Bookkeeping Services asked “If these tools are for the job then I would question why the employees are having to pay for them in the first place” and then offered this advice: Have ADP setup an Advance code for anyone that does this. Report the advance with the hours so that ADP can then deduct it from the net pay. There will be times when the tools purchased will exceed their net pay so you’ll need to give ADP guidelines as to how much to deduct for their advance.
- Rondi M. Lindquist of AccountAbilities, LLC had this to say: These answers are all well and good, but personally as as a business owner, I would be pretty ticked off if my employees took personal privileges with my debit/credit card. Now you the bookkeeper has to keep track of the employee’s personal expenses as well? Do the employees sign some kind of debit card responsibility contract?
- Jo had this to say: Our company also works with ADP. Your payroll representative or the ADP website should be able to provide you with a withholding authorization form to authorize any deduction from their pay. Erring on the safe side, I would rather have the employee authorize the deduction formally rather than just a simple note on the receipt. I believe you can use the no. 39 code “reimbursement” and make the deduction amount positive (reimbursement from employees) instead of negative (reimbursements to employees). But then again, check with your state if deductions other than mandated are even allowed.
I have to admit, I agree with:
- Rondi, I’d be pretty ticked if my employees took personal privileges with my debit/credit card or revolving charge accounts with my vendors! If you are a business owner, make sure you are reviewing the statements each month and know what your employees are charging where.
- Jo makes a very valid point – make sure that you provide the employee with an withholding authorization form for the repayment.
- Laura also makes a very valid point – if the tools purchased were for a specific job, I’d question why the employee is having to pay for them.
If it were me, I would make sure that I clearly indicated the date that debt to the company occurred, what Vendor was involved, details about what the charge was for (meaning if the employee purchased a specific tool, indicate what that tool was), and the terms of the repayment. Creating a custom withholding authorization form in the QuickBooks Letters function would help to automate this process – I’ll cover this in another blog post.
If you do payroll in-house using QuickBooks, this is how I would track this situation, keep in mind that I’m anal and want to see this information quickly – just by looking at the Chart of Accounts and not having to run any special and/or modified reports to see balances. Also keep in mind that this only one way to record this information.
Your employee, Joe Test, purchased a saw on 10/01/2013 using the companies Home Depot credit card – the final price of the saw was $599.89. In addition to the saw, he also charged $359.99 for materials for a job. He has brought you the receipt and you’ve had him sign the proper authorization for deduction paperwork indicating that he has authorized you to withhold $100.00 a week from his paycheck until the saw is paid in full.
First, I’d set up the necessary tracking for the loan repayment.
- In QuickBooks, I’d have or create an Other Current Asset Account called Employee Advances & Loans on the Chart of Accounts
- For each employee that I provided an advance or Loan to, I’d create a sub-account. The “name” of the account would include the date the transaction occurred and the employee name.
- In the Payroll Item List, I’d create a Deduction item, naming it with the date and what it was for. On the Agency for employee-paid liability window, I’d select the Loan account in the Chart of Accounts. On the Tax tracking type window, I would make sure that it was set to None. On the Taxes window, make sure that none of the tax items are checked. On the Calculate based on quantity window, select Neither. On the Gross vs. Net window, select Net pay. Because this deduction item is for a specific person and loan – on the Default Rate and Limit window, enter 100.00 in the top box (rate) and 599.89 in the bottom box (limit).
- Next, I’d edit Joe’s employee record, going to the Payroll Info tab OR choosing the Payroll & Compensation Info dropdown (depending on your version of QuickBooks) and pull in or add the deduction in the Additions, Deductions and Company Contributions section.
Recording the bill from Home Depot:
The next thing we need to do is record the purchases on the Home Depot credit card account. From the QuickBooks Banking menu, choose Enter Credit Card Charges, select the Home Depot credit card account. In the Purchased From drop down, choose the Home Depot Vendor. Click the Items tab, select the appropriate Item or Items for the actual materials purchased, and enter 359.99 and select the appropriate Customer:Job.
Click on the Expenses tab and select the Employee Loan account – QuickBooks may display a window indicating that it appears like you are about to pay your payroll liabilities – just click Cancel here. In the Amount column, enter 599.89. In the Memo field, enter repaying at $100 per week via payroll deduction. Save the entry.
When you look at your Chart of Accounts, you’ll see that the Home Depot Credit Card has a balance of 959.88 and the Employee Loan account has a balance of 599.89.
When you create Joe’s next paycheck, you’ll see that the 100.00 deduction has been made.
After you’ve created the paycheck, a quick look at the Chart of Accounts displays the new employee loan balance – without having to run any reports!
Now if you really want to cover all your bases – you could highlight the employee purchase and any notes you made on the Home Depot receipt, scan it in and attach it to the Loan account on the Chart of Accounts. Additionally, you could scan and attach the signed employee deduction authorization to this same Chart of Accounts item.
Look for a post on Thursday, 10/24/2013 about using the QuickBooks Letters function to create a Deduction Authorization form.
I hope you found this post to be helpful, if so please take a moment to leave a comment or share it on your favorite social media platform.