What exactly is a reimbursable expense? It can be an expense a company incurs when performing work for a client, such as postage, mileage, meals. It can also be an expense when an employee purchases either goods or services for the employer. Or it can be when a company bills out material and labor costs on a cost plus basis.
There are two types of reimbursable plans, accountable and non-accountable. With an accountable plan, the employee or company saves all receipts and is reimbursed for the expenses. Anything without a receipt becomes taxable either to the employee or company. For example, an employee may go out of town on a business trip. The cost of the gas, or airfare is reimbursable, along with meals and other incidentals related to the trip.
An advance would not be taxable to the employee until after all receipts were turned in and reconciled with any cash returned. If the receipts do not match up with the amount of the advance, then the difference owed the company becomes wages to the employee subject to federal, medicare, social security and futa tax.
An advance should be posted to an Expense Advance account on the Balance Sheet. After the receipts are turned in, then the Expense Advance account is credited and the proper expense accounts are debited. Other types of reimbursements would be cell phone usage, if for the benefit of the company, meals, mileage, tolls, and parking.
A non-accountable plan is just like it sounds. There is no accounting for the expense. Instead, the company will give an employee an allowance for the benefit. This allowance is a taxable fringe benefit to the employee. These fringe benefits are taxable for federal, social security, medicare and futa tax.
A company that incurs expenses on behalf of their client will bill their clients for those expenses. Some companies, like lawyers, accountants, and doctors will not bill separately for postage, copies, travel, etc., but rather include the cost in their fees. Other companies will bill their clients for the exact amount of the expense. In this case the expense will be credited for the amount of the reimbursement.
Contractors, builders, and other service type companies may offer their clients a “cost plus” contract. The reimbursable expenses will have an additional cost added to it. This additional cost is income for the company.
There really is no right or wrong way to record a reimbursable expense. It just depends on how the company wants to view the financial statement. All of the reimbursement can be credited against the expense or credited to an income account. You could also split the account if you use the “cost plus” method and record the actual expense reimbursement to the expense and the amount above the reimbursement to an income account.
However you plan to record your reimbursable expenses, remember to record your meals in an account by itself because it is treated differently on your tax return.