How to Settle an Employee Advance: A Closing Guide

An advance paid to an employee is not closed on the day it is paid, but on the day it is settled against documents and its balance reaches zero. This article is not about what an advance is, but about how it is closed: the steps from request to closing, what happens when spending comes in below or above the advance, the accounting logic, the columns of an Excel advance tracking sheet and how to follow up open advances. For what an advance is and how the whole process runs, see employee advance management. The chart of accounts and the accounting practice described here are Turkish (the Tek Düzen Hesap Planı, Turkey's uniform chart of accounts).

How is an employee advance closed?

An employee advance is closed when the employee links their expense documents to the advance, those documents are approved and the remaining difference is cleared by a refund or a payment. Closing is not a single transaction but a three-part settlement: documents, approval and the difference.

In practice the most common problem is that the advance is forgotten once it has been paid. The employee spends the money, puts the receipts in an envelope and the expense form arrives weeks later; meanwhile an open advance balance sits in the books. Putting the closing rule in writing from the start stops these balances from piling up.

Which steps does an advance go through from request to closing?

An advance goes through six steps: request, approval, payment, spending, settlement and closing. Each step should have an owner and a record.

1. Request: The employee states the amount, the purpose (for example a business trip or an on-site purchase) and the expected closing date. If the employee advance form is kept in Excel, these fields should be mandatory.
2. Approval: The manager approves the purpose and the amount. If company policy includes rules such as an advance ceiling, or no new advance for an employee who already has an open one, they are applied at this step.
3. Payment: The finance team pays the amount and attaches the payment record to the advance. For cash payments an advance receipt is signed; for bank payments the bank slip is sufficient evidence.
4. Spending: The employee spends the money and collects a document for every expense: invoice, receipt, ticket.
5. Settlement: The employee links the expense documents to the advance as an expense report. When the report is approved, the amount spent is deducted from the advance.
6. Closing: The remaining difference is cleared by a refund or an additional payment, and the advance is marked as closed.

In closing a business advance, the step that loses the most time is the fifth one, because documents often arrive incomplete or late. That is why setting the closing date at the time of the request matters.

What happens if spending is lower or higher than the advance?

If spending equals the advance, the advance closes; if it is lower, the employee refunds the difference; if it is higher, the company pays the difference to the employee. The outcome of the three cases is summarised in the table below.

The amounts in the table are examples only. In the case of a refund, the date and proof of the refund (bank slip or collection receipt) should be attached to the advance record. In the case of overspending, the company should check that the spending complies with policy before paying the difference; unapproved overspending should not be paid automatically.

How is an advance settlement recorded in the accounts?

In an advance settlement, the balance on the advance account is transferred to the relevant expense accounts on the basis of the approved expense documents, and the remaining difference is cleared through a cash or bank movement. In the Turkish uniform chart of accounts, advances given for business purposes are usually tracked in account 195 İş Avansları (business advances), and advances against salary in account 196 Personel Avansları (personnel advances).

The general booking logic is as follows (the choice of accounts can vary with the company's chart of accounts):

• When the advance is paid: Account 195 İş Avansları is debited, and the cash or bank account from which payment was made is credited.
• When the expense documents are approved: The amounts on the documents are debited to the relevant expense accounts, and any VAT shown separately on the document and deductible is debited to the relevant VAT account; account 195 İş Avansları is credited with the total.
• When the employee refunds the difference: The cash or bank account is debited, account 195 İş Avansları is credited with the refund amount, and the balance is cleared.
• When the company pays the difference: The spending above the advance is recorded as a payable to the employee and closed with the payment.

Example: a business advance of TRY 10,000 is paid and expense documents of TRY 8,500 are approved. TRY 8,500 is transferred to the expense and VAT accounts, the employee refunds TRY 1,500, and no balance remains for this employee in account 195.

Salary advances in account 196 Personel Avansları, by contrast, are not closed with expense documents but usually by deduction from salary in payroll. Keeping the two accounts apart makes month-end reconciliation easier. Confirm the tax and booking details with your company's mali müşavir (certified public accountant).

Which columns should an Excel advance tracking sheet have?

An Excel advance tracking sheet should show, on a single row, to whom each advance was given, when, how much, and how much of it has been closed with documents. The column set below is a sufficient starting point for small teams.

An advance receipt template can also be kept in Excel; however, the signed copy of the receipt or the bank slip should be linked to the row in the sheet by file name. The weak point of an Excel advance tracker is that its rows are updated by hand: if nobody updates the balance when a report is approved, the sheet does not reflect reality.

How are open advances followed up?

Open advances are followed up by ageing them by the number of days since payment and assigning a follow-up rule to each age band. The goal is that no advance is left without an owner or a deadline.

Rules that work in practice:

• Ageing bands: 0–30 days, 31–60 days, over 60 days. The bands can be adjusted to the company's travel and payment cycle.
• When the planned closing date passes: A reminder is sent to the employee and their manager.
• When the second threshold is passed: The finance team takes the matter up together with the manager; if documents are missing, what is missing is communicated in writing.
• New advance for an employee with an open advance: Not granted under policy, or subject to additional approval.
• Month end: The balances of accounts 195 and 196 are compared with the total of open advances in the advance tracking sheet.

These rules bring discipline to the advance and expense process; but when they are run by hand, the continuity of reminders and balance updates depends on individuals.

Conclusion: close advances with documents and rules

An advance is closed not when it is paid, but when it is settled against documents and its difference is cleared. Setting the closing date at the time of the request, defining the three outcomes (equal, lower, higher) in advance and ageing open advances make this process predictable.

In Masraff, advances are settled against expenses: the employee links an expense report to the advance, the balance is recalculated when the report is approved, and the advance closes automatically when the balance reaches zero or below. A user with the accounting role can also close an advance manually; if ERP integration is in use, closings can be done in bulk. For details, see the Masraff cash advance and expense management pages.