Reimbursed Employee Expenses Journal

During the course of their employment, employees often incur expenses on behalf of a business and need to be reimbursed at a later date. In order to process the reimbursed employee expenses transaction two bookkeeping journal entries need to be posted.

  1. The expense is posted and a liability established to the employee.
  2. The employee is reimbursed and the liability is cleared.

 

The Expense is Posted and a Liability Established

Suppose an employee incurs travel costs of 200 and submits an expense claim for reimbursement of the amount at the end of the month. From the expense claim the business will post the following reimbursed expenses journal entry.

Reimbursed employee expenses – The expense is recorded
Account Debit Credit
Travel expenses 200
Employee reimbursement 200
Total 200 200

The debit of 200 represents the travel expense in the income statement of the business. The credit establishes a current liability account in the balance sheet representing the amount due to the employee.

In this example the liability account is shown as the employee reimbursement account. Depending on the number of reimbursed employee expenses, the business might establish a separate account for each employee in the accounts payable ledger or if the amount is to be reimbursed through wages, post the amount to the net wage control account.

The Accounting Equation – Expense Recorded

The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction.

In the first transaction the expense is recorded and the accounting equation is as shown below.

reimbursed employee expenses journal 1

In this case one balance sheet liability account (employee reimbursement) has been increased by 200 reflecting the amount due to the employee. In addition on the same side of the equation, the expenses of 200 decrease the net income, retained earnings, and therefore owners equity in the business by the same amount.

The Employee is Reimbursed and the Liability is Cleared

At a later date the employee will be reimbursed for the expenses and the following journal is recorded.

Reimbursed employee expenses – The employee is reimbursed
Account Debit Credit
Employee reimbursement 200
Cash 200
Total 200 200

The balance on the employee reimbursement liability account is cleared by the debit of 200 when the cash is paid to the employee.

The Accounting Equation – Reimbursed Employee Expenses

In the second transaction the employee is reimbursed and the accounting equation is as shown below.

reimbursed employee expenses journal 2

In this case one balance sheet asset account (cash) decreased by 200 when the employee was paid. On the other side of the accounting equation a liability account (employee reimbursement) has also decreased by 200, reflecting the reduction in the liability to the employee when the expense is reimbursed.

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Last modified November 12th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.

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