Question about reimbursement

[cuidia]

Reimbursement of expense claims?

Let’s presume you have created a proper chart of accounts with either capital accounts or owner’s equity, depending on your form of organization. Create the expense claim to record the purchase, allocating the transaction to the applicable expense account. This creates a liability in the account called Expense claims, showing that the business owes you money for making a purchase on its behalf. Next, the liability should be cleared. If you want to actually reimburse yourself, use Spend Money an…

Hi Tut,

In regards to your post.

I am in partnership, and if I want to reimburse myself. You have mentioned “If you are an owner/partner/shareholder, however, it would be more usual to use a journal entry to clear the liability. Debit Expense claims and credit your Capital account or Owner’s equity.”

I am a bit confused about this step, say I purchased something worth 10k out of my own pocket. Then I make a sale that is 10k, now my business bank account has 10k. After I transfer 10k to my personal account as reimbursement. My business has 0 balance. If I do the journal to credit owner’s equity account, it will not reflect the 10k transfer correctly.

Please help.

[Tut]

@cuidia, you are reading a very old thread. Have you read the current Guide? https://www.manager.io/guides/best-practices/expense-claims.

If you are a partner with a capital account (as all partners should have) and choose your name from the Member type when designating the Payer of the expense claim, your capital account will automatically be credited. In other words, one of the steps referred to has been bypassed.

Now, you can set yourself up as a defined Expense Claim Payer if you want, and reimburse yourself rather than have the claim go automatically to your capital account.

@cuidia

If I do the journal to credit owner’s equity account, it will not reflect the 10k transfer correctly.

You would do one or the other, not both: either list yourself as an Expense Claim Payer and reimburse yourself or select yourself as a Member and let it go to capital. The first option is equivalent to first clearing Expense claims (the liability account) to capital and then drawing the amount of the reimbursement from the business.

[cuidia]

Thanks. I will give it a try. Also, is reimbursement considered as drawings? aka salary?

[Tut]

@cuidia

is reimbursement considered as drawings?

Not if the reimbursement is directly clearing the Expense claims account. That account records external liabilities the company owes to someone outside (even if that someone is an employee or owner). If you are going that route, you have decided that you are, in effect, a lender, not an owner. But if you decide to pay yourself back from your capital account, yes, that would be a drawing.

@cuidia

aka salary?

The term salary typically applies to employees. When a partner takes money, it’s generally considered a draw. Local law may influence whether or not partners can be considered employees. I would consult an accountant locally on this. It’s possible that partners might receive both salary (regular pay) and draws from capital. The former would (hopefully) be more regular, the latter might only be decided at the end of a year.