How to Record Reimbursable Expenses in QuickBooks
There are three ways to record reimbursable expenses in QuickBooks, but only one of them is correct. In order to determine a margin and to prevent other problems, QuickBooks users need to follow th...

There are three ways to record reimbursable expenses in QuickBooks, but only one of them is correct. In order to determine a margin and to prevent other problems, QuickBooks users need to follow the correct method. Here are the three methods, and their associated problems.

Method 1: When recording an expense incurred for the customer, click the Expenses tab from the Write Checks or Enter Bills screen, select the appropriate expense account, select the appropriate customer, and do not check the column with the invoice icon above it. Save the transaction. You can now generate an invoice for the customer, and drop the transaction into the invoice after clicking the Time/Costs button.

Problem with this Method: Using this method causes the expense account to be credited when the invoice is generated for the customer. This lowers the expense account rather than increasing a sales/revenue account. The net result is the same for the bottom line, but this makes it impossible to determine a margin, and makes the expense account seem lower than it actually is.

Method 2: Similar to Method 1, click the Expenses tab from the Write Checks or Enter Bills screen when entering an expense for a customer. Instead of selecting an expense account, select a COGS account. Then select the appropriate customer. Notice that the little invoice icon on the far right side of the screen does not appear.

Problem with this Method: This method is problematic for two reasons:

1. It creates unbillable “Unbilled Costs.” These will show on the Unbilled Costs report, but when the Time/Costs button is clicked on the Invoice screen, they do not appear in that window. In other words, these will remain, forever, on the Unbilled Costs report ,and can never be dropped into a customer's invoice.

2. The cost account is credited when the invoice is generated for the customer. Just as with Method 1, Method 2 makes it impossible to determine a margin, because the revenue account is not credited when the invoice is generated, the cost account is, making the cost account seem lower than it actually is.

Method 3: 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." This sets up the item so it can be used effectively on the Write Checks/Enter Bills screen, and the Invoice screen. Fill in the item with the desired cost and revenue accounts, and other information as needed. If desired, an expense account can be used instead of a cost account, but note that a margin cannot be determined if done this way.

Then, when writing checks or entering bills for reimbursable expenses, instead of using the Expenses tab, click the Items tab and select the item just created. Fill in the correct amount, and do not check the invoice column on the far right side. Save the transaction. The amount will post to whichever cost or expense account was chosen when setting up the item.

When invoicing the customer, click the Time/Costs button, and the item used above will appear. Select it, and QB places it onto the customer's invoice. Save the transaction. The amount will post to whichever revenue account was chosen when setting up the item.

Problem with this Method: The first problem with this method is that it takes some thought to get the Item set up correctly. Once that is done, then this method is the best, since the cost and revenue are both recorded correctly. This is the only method that allows for the margin to be determined, and does not create unbillable “Unbilled Costs.”

The second problem is that your company may need to post to various revenue, cost, or expense accounts for various reimbursable transactions. If this is the case, then individual Items will need to be established, each customized according to the accounts they need to post to.

Final Thoughts

Think of Items like this: they are simply a different way to post to the Chart of Accounts. It's tempting to think of all Items as inventory, but this is not so. Even companies without inventory can use Items effectively in QuickBooks, because only "Inventory Items," are inventory. Other Items are not inventory. They're just a way to post transactions to the chart of accounts - a more effective way, in some cases.

Jennifer A. Thieme is a Certified QuickBooks ProAdvisor. Visit http://www.jenniferthieme.com to find out more about her services. Article Source: http://EzineArticles.com/?expert=Jennifer_A._Thieme

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Category : Business