All you need to know about reimbursable expenses

What is an Expense Reimbursement account?

Expense Reimbursements are contra expense accounts with a credit balance that is contrary to the debit balance of a regular expense account, used when a business makes an initial payment for an expense and is later partially of fully reimbursed by a third party for this initial outlay.

  • Reimbursement is a repayment by a thrid party of an expense that was incurred in the past.
Debit or Credit? – Reimbursed Expense Contra Account
Account Name Account Type Debit Credit
Expense Parent expense account Increase Decrease
Expense Reimbursement Contra expense account Decrease Increase

More examples of expense contra accounts include Purchase Discounts, Returns and Allowances

Examples of Reimbursable Expenses

Two common examples of reimbursed expenses are employee insurance benefits and client charges:

  • Freelancer pays fees on behalf of a client and also incurs reimbursable expenses while working for the client. The client will then reimburse the freelancer for these fees and expenses later in the future.
  • Employer pays for health insurance as an employee benefit and then withholds part of the expense from the employee's payroll.

Let’s take a closer look at the second example of reimbursable employee health insurance expense >>>

Example: Reimbursed Health Insurance [Contra Expense]

When an employer pays for medical health insurance on behalf of its employees and then withholds the employee-paid portion of the expense from their payroll, the reimbursement is recorded in a contra expense account, which reduces the total expense for the company and results in the net amount of the two offset expense accounts reported on its income statement.

Income Statement >>> Employee Health Insurance
[Example of Reimbursed Contra Expense]
Income Statement Explanation
Health Insurance - Gross $9,000 Parent Expense Full amount paid by an employer
(Less: Health Insurance – Employee Portion) ($3,000) Contra Expense Employees' part withheld from payroll by an employer as reimbursement
Health Insurance - Net $6,000 Net Expense Employer's part after offset (Net Balance = Parent - Contra)

Although expense contras are used less frequently than other contra accounts, they are especially useful when accounting for large volumes of reimbursements. For instance, the benefit of using the health insurance expense contra account is that management can easily track the company’s total cost separately from the proportion reimbursed by the employees.

Different companies use different names for their health insurance contra expense accounts, for example:

  • Health Insurance – Employee Portion
  • Withheld Employee Health Insurance
  • Employee Benefits – Medical Insurance
  • Insurance – Employee Reimbursements

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