All you need to know about reimbursable expenses
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|
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 >>>
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]|
|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:
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