When a company lends money to one of its employees, the company will debit the asset account Loans to Employees and will credit the asset account Cash.

The portion of the balance in Loans to Employees that will be due within one year of the balance sheet date is reported as a current asset. The portion of the balance in that account that is not due within one year of the balance sheet date will be reported as a long term asset.

Interest on the loan should be accrued by the company and reported as other revenue. The company’s entry to accrue interest is a debit to the current asset Interest Receivable and a credit to Interest Revenue.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

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