Journalising EXPENSES incurred on behalf of client

[bookkeeperchick]

Hi there! I just joined today, and sorry for an immediate question... We incur expenses on behalf of our clients which we bill back to clients' invoice at cost (i.e., no margin at all)... I don't want this to be included into income bcoz there was no mark-up & don't want to pay sales tax if added to sales income which are usually on the invoice. Please advise the best journal entry for this type of expenses incurred on behalf of clients that are billed back to them on sales invoice without any mark-up at all. Many thanks for your time & attention

 

[ArcSine]

Two typical approaches:

1. When you incur such an expense, you debit to a receivable on the balance sheet...probably an account set up solely for these kinds of items. When client pays the invoice (including the reimbursed expense) you credit that portion of the collected cash to that special receivable account.
2. On your P&L you have a pair of accounts. Into one you place the debits whenever you incur one of these to-be-reimbursed expenses. The other account is credited for reimbursements received from the client.

With a moment's thought you can see that the only diff in these two is whether you track the offsetting debits (when you pay the expense initially) and credits (when client reimburses) on the balance sheet or on the P&L.

Which method is more appropriate depends on the particulars of a given situation. You can decide which one better reflects the parties' intentions in your case. Long-run, though, it shouldn't be a significant issue either way since the credits are cancelling off the debits over time.

As a side note, check carefully with the sales tax rules for your jurisdiction. Make sure that you are structuring your arrangements to ensure that they aren't subject to sales tax.

 

[bookkeeperchick]

Two typical approaches:

1. When you incur such an expense, you debit to a receivable on the balance sheet...probably an account set up solely for these kinds of items. When client pays the invoice (including the reimbursed expense) you credit that portion of the collected cash to that special receivable account.
2. On your P&L you have a pair of accounts. Into one you place the debits whenever you incur one of these to-be-reimbursed expenses. The other account is credited for reimbursements received from the client.

With a moment's thought you can see that the only diff in these two is whether you track the offsetting debits (when you pay the expense initially) and credits (when client reimburses) on the balance sheet or on the P&L.

Which method is more appropriate depends on the particulars of a given situation. You can decide which one better reflects the parties' intentions in your case. Long-run, though, it shouldn't be a significant issue either way since the credits are cancelling off the debits over time.

As a side note, check carefully with the sales tax rules for your jurisdiction. Make sure that you are structuring your arrangements to ensure that they aren't subject to sales tax.

Many thanks indeed ArcSine for taking your time to reply to my Q and greatly appreciate