Reimbursable expenses: how to record in QuickBooks

There are three ways to record reimbursable expenses in QuickBooks. The first two are very similar.

Method 1 – The Expense Tab/Expense Account Method

When recording an expense incurred for the customer, one of the three purchase windows can be used. These are the Write Checks, Enter Bills, or Enter Credit Card Charges windows. Use the appropriate one according to how you paid for the expense. Fill in the screen as you would normally.

From the Expenses Tab, select the appropriate expense account. Then look at the Customer:Job column, and select the appropriate customer. Save the transaction. Now, generate an invoice for this customer. When you do, QuickBooks will open a window called Billable Time and Costs. This reminds you that you have outstanding billable time/costs. Choose to select the billable cost. Another window opens. It is called Choose Billable Time and Costs. It has tabs at the top. Choose the Expenses tab and locate the expense there. Select it, click OK, and QuickBooks drops the transaction into the invoice. Important: when you have dropped this into the customer’s invoice, you will notice that QB does not assign an Item in the Item column. This is normal – do not add an Item here when using this method.

Behind-the-Scenes Details of this Method

Using this method causes the expense account to be debited when the transaction is entered, and then to be credited when the invoice is generated for the customer and the expense is dropped into the invoice. The first transaction raised the amount in the expense account, and the invoice lowers the expense account by the same amount. Normally, invoices increase a sales/revenue account. They have the same impact on Net Income (profit). If you do not want the reimbursed expense to be recorded as income, then this method should be used.

I like this method. It is clean and easy to understand. Also, a markup can be taken in the Choose Billable Time and Costs window.

Method 2 – The Expense Tab/Cost Account Method

Similar to Method 1, click the Expenses tab from one of the three purchase windows (as explained above). Fill in the window as you would normally.

From the Expenses Tab, select a Cost of Goods Sold (COGS) account. Then select the appropriate customer in the Customer:Job column. Check the box in the Billable column

Behind-the-Scenes Details of this Method

Pretty much the same as above, except that a COGS account was used instead of an Expense account. Like above, a markup can be taken in the Choose Billable Time and Costs window.

I don’t like this method because it skews the Gross Margin if the customer’s invoice is not created in the same period as the expense. Remember that when using COGS, the S stands for Sold, and Sold is the operative word there. If the goods were not sold, this means that an invoice was not created because the sale is recorded on the invoice. If the goods were not sold, then there can be no cost recorded for the goods, because they were not sold. Thus, it is not a COGS, it is an expense (Method 1 above).

When a customer invoice will not be created in the same period as the expense, then Method 1 should be used in order to keep the Gross Margin accurate.

Method 3 – The Items Tab Method

If you aren’t sure what Items do, read this first.

Go to the Items list, and create a new Other Charge item. Click the box that says, “This item is used in assemblies or is a reimbursable charge.” Fill in the Edit Item window with the desired expense account in the left hand side, and desired revenue account in the right hand side. Fill in other information as needed.

Then, when using one of the three purchase windows to record the expense, instead of using the Expenses tab, click the Items tab and select the item just created. Fill in the correct amount, and mark the transaction as Billable in the far right column. Save the transaction.

As above, when invoicing the customer QuickBooks will remind you about this transaction. But instead of clicking the Expense tab, click the Items tab. The item used above will appear. Select it, and QB places it onto the customer’s invoice. Unlike above, notice that QuickBooks DOES use an Item on the invoice here.

Behind-the-Scenes Details of this Method

When recording the initial expense, the amount will post to whichever expense account was chosen when setting up the item. When using the item in the Invoice or Sales Receipts, the amount will post to whichever revenue account was chosen when setting up the item. So it is a bit different from Method 1, because instead of crediting the expense account when the invoice is created, a revenue account is credited.

If a COGS account was chosen in the Item setup (instead of an expense account), then like for Method 2, this method can be problematic for Gross Margin if the customer invoice is not created in the same period as the expense.

No markup is available for this method.

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