Recording Reimbursable Expenses

Last Updated: Dec 19, 2013 12:52AM PST

Learn the two different ways you can record reimbursable expenses in Kashoo.

Note: This article is for expenses that you are being reimbursed for by a client (customer). If you are looking to reimburse yourself or employees, please read this article Recording money the owners put into and take out of the business.

When working for a client, you may incur expenses that are "reimbursable" - that is, the client pays you back for them as part of the next invoice. These expenses have a couple differences from the usual expenses:

  1. For most purposes, they are actually expenses for your client, not your business
  2. They don't affect your income for tax purposes

There are two ways of recording these expenses in Kashoo.

The "Right" Way

Because the reimbursable expenses are basically a short-term loan from you to your client, you may want to show them this way on the Balance Sheet; this is probably the most "correct" way to record them in terms of getting appropriate reports.

1. Create a Reimbursable Expenses Account

Go to Accounts and create a Other Current Asset type account called Reimbursable Expenses Receivable

2. Use the Reimbursable Expense account when entering Expenses

When recording the reimbursable expenses paid, use this account instead of an expense type account (this increases the loan balance).

Note: If you like, you can put the name of the client in the memo or description field so that you can search for it later if need be. Alternatively, you can set up a separate reimbursable expense account for each client, if you're looking to track expenses on a per client basis.

3. Use the Reimbursable Expenses account when creating Invoices

When you create the invoice for the customer, enter a line item for each reimbursable expense and use this same account again (reducing it back towards zero)

The result is that the reimbursable expenses show up on the Balance Sheet only between the time you incur the expense and when you invoice the client for it, which keeps the books squeaky clean.

Note: In order to keep your Reimbursable Expenses Receivable account in balance, you need to charge the customer the exact same amount as you paid. If you are adding an extra charge on top of the reimbursable expense, add this charge as another line item and use an income account (don't use your Reimbursable Expense Receivable account).

The "Easy" Way

Another common method is to simply record the expenses as your expenses, and the reimbursement as income.  When you file your taxes the income and expenses cancel out, so if you are primarily doing accounting for income tax purposes this is a perfectly reasonable method.  This also preserves your expense breakdown by category, in case you want to see where you are spending your and your clients' money.

1. Create a Reimbursed Expenses Income Account

Create an income account called Reimbursed Expenses.

2. Create new Expense Accounts for partly tax deductible expenses

Be sure to create a new expense account for any expense categories that are only partly tax deductible, like Meals and Entertainment; for example, create a fully tax deductible account called Meals and Entertainment - Reimbursable.

3. Record your reimbursable expenses

Record any reimbursable expenses using your usual expense accounts, using the fully tax deductible version where applicable.

Note: If you like, you can put the name of the client in the memo or description field so that you can search for it later if need be.

4. Use the Reimbursable Expenses account when creating Invoices

When you create the client's invoice, add a line item for each reimbursable expense and use the Reimbursed Expenses income account.

Since the final result, for tax purposes, is the same between the "right way" and the "easy way", you can choose the one that seems the best to you.

Note: If you are adding an extra charge on top of the reimbursable expense, unlike the "right way", you do not need to add an extra line item for the charge. You can record all the income to the "Reimbursable Expenses" income account.

Reimbursed Mileage

When your client reimburses you for mileage, the situation is slightly different because the reimbursement doesn't correspond with any particular expense you have already paid; it's an abstraction for the ongoing expenses associated with owning and operating your vehicle.  In this case record the reimbursement as income.

1. Create a Reimbursed Mileage Income Account

Create a new income account Reimbursed Mileage.

2. Use the Reimbursed Mileage account when invoicing clients

Use this account when invoicing your client for mileage - the quantity is the number of miles or kilometers, and the price is the rate your client pays.

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