Expert: Ed McFarland - 9/15/2004

Question
The amount of expenses is material therefore the A/R is set up. What should be the offset be to the expense A/R?

The expenses are the typical travel, lodging, & meal expenses normally incurred when engaged by remote clients.   

The offset to professional fee a/r is an income account.

If the offset to the expense a/r is an "employee a/p" account how is the payment to the employee handled? Cr cash, Dr "employee a/p"? If that is the case then the corporation would not show on it's books any expenses associated with employee expense submissions.

Thanks again!   



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Followup To



Question -
This question pertains the general journal accounting practice associated with an corporate employee who receives reimbursement for expenses.

The scenario is that the employee performs professional services to another entity (Client) through a corporation. In the course of providing these services, the employee incurs expenses which the Client agrees to pay. The corporation bills the Client for professional services and related expenses. The employee submits expense reimbursements for these expenses and the corporation pays the employee.

The question is when the invoice for a given period is generated, which includes both income and related expenses, should the expense portion be set up as income (expense) receivable and when paid by the client relieved. Then, when the employee submits the expense reimbursement, the expenses get booked as expenses.

I am thinking that setting up a payable account that gets washed out when the employee submits the expenses but that has problems as well. What thoughts do you have?

Thanks!         
Answer -
How material is the amount?

If it is relevant, I would create the a/r account for the expenses due.

You have to receive the expense report from the employee to generate the charge.

If you have a lot of people generating these expenses and they are similar in nature, you may want to go to a per diem expense charge, it'll cost you on some and you'll make a dollar on others. But it will keep you from having to wait for expense reports to be submitted.

If they are unique one of a kind expenses, I would treat like a refund.

Good luck


Answer
If your clients are picking up all the consultants travel, lodging, per diem, et al, and for the sake of our discussion, there is no other travel expense, then you would show no expense there because you haven't got any expense, it is all paid back.

If you set up the T accounts, if you buy a ticket with cash, you hit travel expense and cash. But you are not really buying the ticket the client is, in fact if the client had a deep discount or was an airline, to take advantage of their discounts, they could send you a ticket. So you create a recievable for the ticket you bought and your offset has to be the travel expense.

Another way of looking at it is that for the convienence of your employee and client, you are acting as an intermidary.