Accounting for Expense Reimbursements [+ Examples]

All you need to know about reimbursable expenses

Emilie N.- FCCA, CB, MBS
Emilie N.- FCCA, CB, MBS

Emilie is a Certified Accountant and Banker with Master's in Business and 15 years of experience in finance and accounting from corporates, financial services firms - and fast growing start-ups.

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Contents

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.

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

Examples of Reimbursable Expenses

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

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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Emilie N., FCCA, CB, MBS
Emilie N., FCCA, CB, MBS

Emilie is a Certified Accountant and Banker with Master's in Business and 15 years of experience in finance and accounting from large corporates and banks, as well as fast-growing start-ups.

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