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How to account for reimbursable expenses paid on behalf of a client

cnewhall
asked this on August 17, 2012 04:30 PM

I am a lawyer and often pay an expense related to a case, then bill the client for the expense.  how do i account for this transaction in wave.  how do i separately report all the reimbursable expenses paid on behalf of client A from those paid on behalf of client B

 

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Manley Feinberg II

I need to know how to do this as well.  I incur loding expenses, etc. then invoice the client for them. 

I need to be able to add them as a line item on the invoice for reimbursement.  So, I added a product and checked that I purchase it, and picked the corresponding expense account.

But then when I try to add the "product" to the invoice, it does not show up in the drop down.

Please help me-

thanks!

Manley

September 02, 2012 07:03 PM
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Katie H
Wave Accounting

Thanks for your questions!

What you mentioned has to do with "assigning costs to customers" which is a feature we're going to be working on in the future. This will allow you to enter your expenses into an invoice.

In the meantime this is what I suggest you do:

[1] You should make an Income account titled "Reimbursements" (Account ->Settings -> Accounts -> Add an account -> Income). This will not show on your Income Statement report since it will have a balance of $0.

[2] When creating an invoice for a customer, and you create a new product, make sure you link that reimbursed product to the "Reimbursements" income account.

[3] When you make payments for these expenses and the transaction is imported, categorize this transaction and into the "Reimbursements" income account.

If the transaction is not imported (you did not connect your bank account or uploaded statements), then you should go to the Income screen, click on Quick Entry, select "Reimbursements" for the income account, and type in a negative amount. If you paid $100 for reimbursable fees, enter -100.

You can also enter the customer name/number in the Description box for the Quick Entry. If you categorized this payment from an imported transaction, it gets converted to a Quick Entry which you can edit on the Income screen.

I hope this helps sort things out,

- Katie

September 04, 2012 04:07 PM
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Manley Feinberg II

Hi Katie-

RE: step 2:

[2] When creating an invoice for a customer, and you create a new product, make sure you link that reimbursed product to the "Reimbursements" income account.

When I create the "Product", do I also check that I "buy this", and choose the expense account "Lodging", etc.?


RE: Step 3:

[3] When you make payments for these expenses and the transaction is imported, categorize this transaction and into the "Reimbursements" income account.

You are referring to when the vendor pays me back here correct?

So for my initial imported credit card charge for the actual expense, I would I still drop it into the Expense account at all?


thanks for your help!

Manley

September 05, 2012 01:40 PM
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cnewhall

i have the same questions as manley.  here is the situation.  i have a client joe.  i depose the doctor joe is suing.  i pay 100 dollars for the deposition with a check or with my credit card.  i count that as an expense of the case.  down the road, joe pays me back for the cost of deposition (100).  for us accounting dummies, how do we do all the steps involved in dealing with this situation.  and if i have fifteen clients and each has many expenses for their case that i need to get reimbursed for, how do i make a report that tells me all the expenses that relate to joes case

September 05, 2012 02:53 PM
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Katie H
Wave Accounting

When you create the Reimbursement product, you have to choose 'sell this' so that it matches up with the income account you created.  As for part 3, the example I gave you was for when you initially incur the expense on your bank or credit card. When the customer actually pays you back, you can match this payment to the invoice or manually 'Add a Payment'. I will go into more detail for this in our support ticket together, Manley.

Also, Cnewhall, unfortunately at this time it is not possible to see a full customer income/expense report or track the transactions associated to a project or task. It would be great if you could vote for Project Tracking and Customer Reports in our Feature Request page.

I hope this helps sort things out!

- Katie

September 06, 2012 10:36 AM
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Manley Feinberg II

Got it except for 1 question from my post above in bold regarding the step [2] to create the product.

When I create the "Product", I understand that I need to check "Sell This" and link it to an Income account.
Do I also need to check "Buy this" and link the product to an expense account "Lodging", etc.?
or should I NOT check buy this and NOT link it to an expense account?

thanks Katie!!!

September 06, 2012 12:02 PM
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Katie H
Wave Accounting

That's correct, Manley.  You do not need to check 'buy this' and associate it with an expense account.  It only needs to match up with an income account.

- Katie

September 06, 2012 05:40 PM
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myh

I have just been recording these expenses as COGS (media purchased for clients). Everything that comes into my business account from my clients (legal fees + expense reimbursements) gets categorized as legal fees income. At the end of the year, instead of using the total of your legal fees on your income statement report for the year as your total gross income, use instead the total legal fees - (media purchased for clients) as your total gross income.

Any reason why that won't work Katie??

Thank you.

September 09, 2012 03:51 PM
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Katie H
Wave Accounting

It sounds good to me, Myh, if you are actually recording these as costs of goods sold and not being directly reimbursed for those expenses.

Some customers include the cost of their product (travel, gas, parts) in the cost of their product. So, when you get paid, the invoice and all of your costs are fully paid for. Then, you record the cost of that good the exact way you mentioned. Except, some customers want to be directly reimbursed for some of their expenses (travel, for example) and that needs to be reflected on the invoice.

Your method works great and it works for what you are trying to accomplish. Thanks for asking about it!

- Katie

September 10, 2012 07:38 AM
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Manley Feinberg II

Any updates on when this need will be properly handled in invoicing?

 

thanks!

December 14, 2012 12:17 AM
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kevin994mccarthy

I'm confused. Can you provide a step by step on how to do this in Wave.  I have a client where I purchase items on their behalf and then claim back via an invoice (along with my fees).  How do you do this from start to finish? Can you provide an example?

 

Kind regards

Kevin 

December 14, 2012 11:12 AM
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Nicki
Wave Accounting

Hi manleyf,

I'm sorry, you will still have to still use the workaround suggested above to account for your reimbursable expenses. I'm afraid I don't have a timeline as to when this will be implemented.

-Nicki

December 17, 2012 09:25 AM
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Nicki
Wave Accounting

Hi kevin994mccarthy,

I've created an updated video here detailing how to account for your reimbursable expenses and reimbursement. You can add your own fees to the reimbursement invoice as well. 

-Nicki

December 17, 2012 09:28 AM
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vendors

Hi,

Please forgive me in advance for my lack of accounting knowledge.  What type of account should be associated with a reimbursable expense? Income account or Asset account?

To handle the reimbursable expense, I did the method described above:

Created an income account for reimbursable expenses and everything works as described.  Thanks!  

The issue I am having is that after the checking account is credited and the income account is debited and before the invoice is created.  If you view your income report, you will see a loss.  Could be a problem at the end of the year for some.

Would the following also be an acceptable solution?  In addition to creating the income account for reimbursable expenses, also create an asset account called reimbursable expenses.  Then credit the checking and debit the asset account.  Now if you look at your profit and loss, the purchase has no affect.  When you create your invoice as described above, you would have to also create a journal entry that credits your asset account and debits the income account. 

If you could create a product that was linked to the asset account, then the journal entry would not be necessary.

Thanks,

Greg

December 17, 2012 11:29 PM
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Steve
Pro Network
Check Answer

I'm an accountant using Wave.  I have looked into this and one possible solution is as follows:

First you need to make the 'Reimbursements' income account accessible:

Click on the +/- tab on the left (Accounting)
Click 'add account' (top right)
Click on the 'income' tab
Search 'reimburse'
Select 'Reimbursed expenses'
Click 'save'

To raise a sales invoice including expenses for reimbursement:
Click on the '+' tab on the left (invoices)
Then 'create invoice'
Type the customer name - if no matches you get the option to add a customer
In the item box you can choose your 'product' or add a new one - here you would can enter in your usual product / service

Then 'add a line' to the invoice for the reimbursed expense.  For the item box you can add a new product - being reimbursed expenses.  For the price, just add the amount that you need for your first reimbursed cost - this is the amount that will be pulled on to future sales invoices too, but it can easily be overwritten.  

Use the description box to specify exactly what these costs are.  You may have several costs to pass on and want them on separate lines of the invoice - just add more lines, choose the reimbursements product and overwrite the amount / add a description.

This should deal with the sales side.

For the expense side (the incurring of the costs that are to be reimbursed), if this is a cash purchase then go to the 'transactions' tab on the left, and 'add expense'.  In the category box start to type 'reimbursed' and select reimbursed expenses.  For the 'account' column you can either select cash - if using cash belonging to the business, or 'shareholder loan' if you are paying with your own money (this is then recorded in Wave as money that the business owes back to you).

The method for recording the cost will differ if the expenses are being purchased with the business credit/debit card, but the important thing is to allocate the cost to the reimbursed expenses category.


When you pull up a report of income (income statement), Wave will offset the income and expense - so the Reimbursements figure should show zero, which is fine.  When you click on the zero, you will see the numbers being offset.

I hope this is helpful.

Steve

December 19, 2012 05:57 AM
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vendors

Hi Steve,

Thanks for the detailed and clear response.  What about the following scenario:

12/5/2012 -- enter transaction for reimbursable expense of say $2,000 into checking account, which now shows -$2,000 as reimbursed expenses in the income of my profit and loss.

Now, lets say I have no plan to invoice until 1/5/2013 and my fiscal year ends on 12/31/2012.  In addition, lets say the invoice includes other things such as consulting hours etc.  I agree if I enter the invoice into the system, the -$2,000 will be cleared; however, there may be other items on the invoice such as consulting hours that will then show up on the P&L.

This is why I was thinking it would be better to enter the transaction using an asset account.  Then if you could create a product with an asset account, the asset account would be cleared.  Also, the reimbursable expense would never enter in to your P&L.  

Am I thinking about this all wrong?  Is the reimbursable expense that hasn't been reimbursed yet actual a loss on the P&L?  I am a cash not accrual company.

Thanks again,

Greg

December 19, 2012 10:15 AM
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Steve
Pro Network

Greg

The solution I posted was one that I had given to someone in the UK in response to a specific scenario - I tried to make the answer a bit more generic and posted it as I thought it may help.  I also tried to keep it as simple as possible by using the 'reimbursements' account that was already available in Wave - and this was set up as a P&L code.

Based on UK rules (I can't comment on how these may differ with those in your own country), yes, in the scenario you describe, if you have incurred expenses but these have not been invoiced on to your client at the end of your fiscal year, then the balance sheet would be the correct place for the amount that you have spent but not recovered.  This would sit in the current assets section of the balance sheet.

I hope this answers the question.

Steve

December 20, 2012 11:17 AM
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wthomas

On the last suggestion by Steve or anyone else using this method. I understand the "Sales/income" side of it. However, you said when adding the expense for reimbursable expense that in the "category" section we start typing and choose "Reimbursable Expenses". Are you referring to the same Reimbursable expense account (Income account) as we used for sales. Or a separate "Remibursable Expenses" account that we need to setup as an Expense Account, not the same Income account we used before. Only place I am lost. Thanks

February 07, 2013 10:12 AM
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Steve
Pro Network

It's been a while since I looked at this, but from memory, Wave only had one standard account set up for reimbursement of expenses when I last checked, and this was an income account.  Yes, I was suggesting that both the expense and the income be recorded to this same place.  This assumes it is a direct reimbursement such that the income and expense will match and clear the balance to zero.  This would be acceptable here in the UK if it is just a 'passing on' of a cost incurred on behalf of a customer, rather than a conventional purchase & sell on at a higher price scenario.  There may be better ways to achieve this, but this method works for simple scenarios where the expense and income fall into the same financial period.

February 08, 2013 03:43 AM
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wthomas

Thanks Steve. That is all I am trying to accomplish. Simple reimbursement. I am getting paid for the service, but part of this service is setting up an account for someone which has a fee. I am paying the fee and they are reimbursing me. So I believe your method will work just fine. Thanks

February 08, 2013 09:54 AM
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Barry French

I buy products on behalf of clients using my Credit Card. I want to Invoice these reimbursable expenses and have set up my accounts exactly as Steve mentions above.  When I receive payment for the Invoice I cannot get back to the Reimbursed Expenses income account he mentioned at the first setup. I think I can understand the workflow but cannot select the Reimbursed Expenses account when receiving a Payment on the Invoice.

WORKFLOW

1. Buy X for $100 on Credit Card

2. Increase Credit Card account by $100

3. Create $100 Invoice for Customer with product Reimbursement linked to income acct Reimbursed Expenses. Send invoice.

4. Receive payment to my Bank Account - Receive Payment doesn't allow me to categorise this as Reimbursed Expenses - I have the money in my account but Reimbursed Expenses is still at $100.

5. Pay the CC through a transfer. Bank account down by $100, CC now $0.  Reimbursed Expenses still $100.

Ok lost. Cannot see how I can get the Reimbursed Expenses account back to $0 without.  Is it because Reimbursed Expenses is an Income Account not an Asset Account.

A simple step by step method to claim expenses from clients where I have used a Credit Card to purchase on their behalf would be really helpful.

 

 

September 09, 2013 04:21 AM
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lavin.mirchandani

Hi Nicki,

I looked at your video. That adds a lot of clarity on this topic. However, what happens when you receive a payment for your invoice - you simply add it to your invoice as a payment?

 

Finally at the time of computing the taxable /gross income you simply run a income report less Reimbursement account income?

September 09, 2013 06:55 AM
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Tyler
Wave Accounting

Hi Barry,

Thank you for the post! I think you are very close here in your workflow. When you purchased the $100 with your credit card this amount should have been imported to your transactions screen. What we want to do is categorize this transaction to the reimbursable expense category. This will zero out the reimbursable income account and you should be back in balance.

I hope this helps. Please get in touch with out customer support heroes if you have any further questions. Also, thank you @Steve for the helpful responses!

Tyler

September 09, 2013 07:03 AM
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Tyler
Wave Accounting

Hi Lavin,

Thank you for the question. Yes, when you receive payment for this reimbursable expense we will pay the outstanding invoice. Now, when you run a Income Statement through your reports section we will see income of $1000 and an expense for $1000, which leaves us with a net of $0 in terms of taxable income. I hope this makes sense!

Tyler

September 09, 2013 07:18 AM
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Barry French
Thanks for the response.

I had categorized the transaction as Reimbursed Expenses but it added the credit card entry to the credit side so i ended up with $200. I have to add the credit card expense as a negative amount to get a 0 balance.

On other CC transactions I just added them as an expense in a positive amount and they show up as red.

Still confused.
September 09, 2013 07:44 AM
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Barry French

I have now looked at this carefully and the Credit Card report shows the purchase correctly on the Credit side of the account provided it is entered as an Expense in a negative amount (-$100) with a category of Reimbursed Expenses and show up green.

Other credit card purchases (Mobile bill, Petrol etc.) are entered as an Expense in a positive amount and show up red.

I suspect this is to do with Reimbursed Expenses being defined as an Income account but I have exceeded my understanding of accounting practices for this. Hope this helps.

My vote is for a simpler way to do this.

September 09, 2013 08:41 PM
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Katie H
Wave Accounting

Hi everyone, 

To help clear up how to record a reimbursable expense, I took parts of Steve's excellent response and created an FAQ How to record reimbursable expenses on an invoice (assign costs to customers)

From here, I will close this thread for comment in order to direct any searches for this to the FAQ.  If you run into more complicated accounting issues with reimbursable expenses, we highly recommend talking to a Pro on our Wave Pro Network!

Thanks again for everyone's input on this thread.

Katie

September 13, 2013 03:57 PM
Topic is closed for comments