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pallc
June 20, 2024
Question

QBO and Out of Pocket Expenses Reimbursed by Client - properly recording on the income statement

  • June 20, 2024
  • 1 reply
  • 0 views

My Question: If we incur an out of pocket expense for a client, and charge them on the following month's invoice for that exact amount, is that considered taxable income and therefore should be shown as part of revenue on the income statement?

 

Example: We incur sometimes well over $30K in advertising/marketing/contractor support expenses throughout the year that we then bill to our client at that exact cost a month or so later (and then receive back sometimes 2 or 3 months later). We DO NOT have to provide them with receipts.

 

Workflow for this in QBO:

- I am not the only one in the books. I think the billable expense feature will be too complicated and time consuming. For example, we would have to split & assign over $5,000 in advertising expenses to each client, and remember to add it to the invoices each month.

 

- Would it make sense to create an service called "reimbursed expense" for any billable expenses we receive back, and track the expenses we incurred on behalf of clients in one separate expense account? Owner is having a hard time understanding how much is just operating expenses for the business itself versus just reimbursed client expenses and wants to see it split up.

1 reply

L
LeizylM
June 20, 2024

Handling client-reimbursable expenses correctly is crucial for accurate financial reporting and tax compliance, pallc. I will provide more details about this below.

 

Reimbursed expenses are excluded from taxable income. They are considered pass-through items and should be excluded from your revenue when preparing your income statement.

 

The proper way to handle this process is through billable expense feature. However, since you find it complicated, yes, you can create an expense account called Client Reimbursable Expense.

 

Here's how:

 

  1. On the left navigational bar, go to the Transaction tab.
  2. Select Chart of Accounts and then click the New button.
  3. In the Account Type section, choose Expense and complete the necessary fields.
  4. Once you're ready, click the Save and Close button.

 

When billing the client, we can create a service item called Reimbursed Expense and ensure that this amount is reflected accurately on the invoice.

 

I would suggest consulting with an accountant. They have specialized knowledge and expertise in financial matters, and provide other options to ensure your books are accurate.

 

I've attached a link you can visit to learn more about personalizing sales forms and creating custom templates: Customize invoices, estimates, and sales receipts in QuickBooks Online.

 

Furthermore, QuickBooks offers different kinds of reports that will show the different aspects of your business. Learn how to customize them to make sure they provide the information you need to track. I've got this article for more information: Customize Reports In QuickBooks Online.

 

I'm always prepared if you have more questions or concerns with your invoices. Kindly leave a comment below, and I'll promptly lend a hand. 

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