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Level 1

How to offset directors loan by paying them wages

The director wants to offset the directors loan account against wages paid, is this done via a journal entry or a deduction in the pay run?

3 Comments 3
Level 8

How to offset directors loan by paying them wages



Thanks for posting in the Community!


In regard to go about how to record this type of transaction I'd recommend you reach out to a QuickBooks Online Certified ProAdvisor for best practice to make sure everything is being recorded properly. 


In QuickBooks Online you can set up a liability account to track the amount for the directors loan, and then record an expense or cheque transaction to pay off the amount.


Create a liability account to track the loan:


  1. Click on the Settings icon, and choose Chart of Accounts.
  2. Click on New.
  3. Under Account type, choose Non-current liabilities and in Detail type choose Notes Payable or Loan Payable.
  4. Under the Name field, give it a name like the Loan amount for a start-up.
  5. Under Balance enter the loaned amount, and in the as of date enter the date you wanted to start tracking the payment.
  6. Click on Save.

Next, is to create an expense if you wanted to start recording payments for the loan.


  1. Click on the + New button.
  2. Click on Expense or Cheque.
  3. Fill out the fields like Payment account, date, and supplier.
  4. Under the Category details, select the liability account for the loan and enter the amount too.
  5. Click on Save and close.

Once done, the loaned amount in the liability account should decrease each time you record the expense for the repayment.


You can check this link to learn more about Set up a loan in QuickBooks Online.


Post again in the Community if you have further questions about QuickBooks Online. Have a great rest of the day!

Level 1

How to offset directors loan by paying them wages

Thank you,  I already have the loan account set-up, just need to work out how to offset it with wages.





How to offset directors loan by paying them wages

Thank you for your response, Bangers11,


There are multiple ways on how you can offset loan in QuickBooks Online and it can be done by creating a journal entry or enter it as a deduction on a pay run. If you prefer to enter it via journal entry, we recommend reaching out an accountant to confirm the posting of accounts and accuracy on your reporting. 


However, if you prefer to enter it as a deduction on a pay run, you'll need to set up a deduction category. Here's how: 


  1. Go to Employees tab and select Payroll Settings
  2. Select Deduction Categories.
  3. Select Add and enter a Name for the deduction.
  4. Enter the Deduction Type and any other relevant fields, then select Save


For more detailed information, you can check on this article: Set up employee deductions


Message us back if you have any other questions. Have a nice day!