Journal Entry for Employee Reimbursement
Employee reimbursement is the process in that employees use their own money to pay for the business expense and claim back the money from company.
In normal business operations, the company will make payments to the supplier and record expenses. Sometimes, the payment is made later, so they record accounts payable rather than cash. The transaction happens between the company and the supplier. The payment is made from the company account to the supplier account.
A reimbursement is a payment made to another party that has incurred an expense on behalf of the company. There are middlemen who are the third party between the company and the supplier. The middlemen are usually the company employees who make payments and claim back from the employer.
The employees their own pockets money to pay for their employers’ business expenses, then seek reimbursements from employers later. It happens when it is a normal business expense with a minimal amount. Employees know that the expense will be approved without any questions asked.
Moreover, the employees may advance some cash from the company, but it is not enough to pay for the expenses. The employee uses their own money to complete the payment. Next, they have to bring back the invoices to clear the advance and reimburse the excess cash.
Journal Entry for Employee Reimbursement
When the company advances cash to the employee for a specific purpose. The journal entry is debiting staff advance and credit cash.
| Account | Debit | Credit |
|---|---|---|
| Staff Advance | $$$ | |
| Cash | $$$ |
The transaction will increase the advance which is the current assets on the balance sheet. The company expects the employees to clear the advance within a few months depending on the nature of the purchase.
The actual expenses may be higher than the advance amount, so in order to complete the purchase, employees use their cash to fill in the extra amount. Subsequently, the employee has to bring the supporting document to clear the advance and reimburse the extra cash. The journal entry is debiting expense and credit advance, extra cash.
| Account | Debit | Credit |
|---|---|---|
| Expense | $$$ | |
| Staff Advance | $$$ | |
| Cash | $$$ |
The expense accounts will depend on the nature of the purchase or expense. The staff advance will be reversed from the balance. In addition, the company has to pay the cash to employees to reimburse the cash paid.
Reimburse without cash advance
In some situations, the employees did not advance cash from company. They make the whole payment to suppliers and reimburse the company. They have to record expenses and cash paid to the employees. The journal entry is debiting expense and credit cash.
| Account | Debit | Credit |
|---|---|---|
| Expense | $$$ | |
| Cash | $$$ |
The transaction will record the expense on income statement and cash paid to the employees.
Journal Entry for Employee Reimbursement Example
company ABC assigns an employee to a mission in a rural area with a cash advance of $ 1,000 to pay for accommodation and other expenses. During the mission, the employee spends $ 1,500 which is over the advance amount. After the mission, the employee prepares the documents to clear advance and reimburse the extra $ 500 that he paid on behalf of company. The document got approval and company give him back the $ 500. Please prepare the journal entry for employee reimbursement.
When the company advances the cash to the employee, they already record the advance on the balance sheet. They will reverse it back when the expense incurs and employees bring back the appropriate document. However, the actual expense is $ 500 higher than advance, so company has to pay an extra $ 500 as employee reimbursement. The journal entry is debiting mission expense $ 1,500 and credit advance $ 1,000, cash $ 500.
| Account | Debit | Credit |
|---|---|---|
| Mission Expense | 1,500 | |
| Staff Advance | 1,000 | |
| Cash | 500 |
Example 2
Mr. A is a consultant in a company. One day, he has to go to the client’s office by taxi which cost $ 20. He uses his own money to pay for the taxi and expects to claim back from company. The next day, he prepares the form to reimburse the cash from an accountant, and he gets back his $ 20. Please prepare the journal entry for employee reimbursement.
Mr. A knows that is just a normal business expense with a low value. He will not be questioned as it is part of his job to meet the client. So he decides to spend his money and reimburse later. When the company receives claimed form with proper approval, they will give back the cash to Mr. A. The journal entry is debiting travel expenses of $ 20 and credit cash of $ 20.
| Account | Debit | Credit |
|---|---|---|
| Travel Expense | 20 | |
| Cash | 20 |
