Employees that spend money on the behalf of your organisation are often reimbursed through payroll or as a separate payment. There are several ways to do this. Note that we are referring to ‘Reimbursement’ so it is assumed these Reimbursements aren’t taxable for this help note as it’s general and educational information only.
Some Methods For capturing Reimbursements
All expenses in a single Purchase Transaction
Enter a Purchase using the Employee as the Contact with each line item in the Purchase representing the individual expense items (use the description field to add detail as to who the Contact is for the expenses or the date of the expense etc.). When you make the Reimbursement Payment to the employee you can apply this Payment to the Purchase accordingly. Attach receipts and claim forms to the Purchase transaction as scanned documents. The negative of this approach is that you lose supplier Contact tracking as the Contact on the Purchase is the person you are reimbursing. This method isn’t great when you want to track other information about the expense. e.g. an asset purchase or other expenses that have more complex tax, asset and/or inventory implications.
The short back and sides equivalent
Track all the employees expenses in a spreadsheet and when ready to reimburse them create the Purchase and apply the Payment. Attach the spreadsheet to the Purchase for record purposes. You could also enter the payment as a General Journal. You would be crediting your Bank Account and debiting and Expense Account. It’s fast but suffers from lack of detail. This may not be suitable in some zones where your local tax authority requires a more thorough approach.
Enter the expense(s) as a Pay Item in payroll
With this method you need to mark the payment as Non taxable if it’s a clear cut no taxable payment for Reimbursement. If in doubt speak to your advisor. For example the pay item Wage and Salary: Expenses Reimbursement could be used. A General Journal could be used to itemise this item in your accounts as it would be posted as one bulk amount in the Payroll transaction.
Capture each expense individually as a Purchase
Enter each expense as a separate Purchase that I want to track against suppliers. Then when it comes time to reimburse the person using an online banking transfer payment, check or otherwise then apply a payment to all of those outstanding purchases at once. As an example you may apply $1000 to a dozen different purchases. This creates just one payment on the Bank Reconciliation - makes it easy.
Non cash settlement of expenses for Directors
Enter each expense individually against the supplier Contact and apply the payment using a Employee/Director loan Account. e.g. Loan: Director Joe Blogs. This approach is often used for company Directors and Officeholders who treat their business expenses as money being loaned temporarily or longer term to the business. When they are repaid the monies it is applied to their Loan Account, thus clearing it.
