Why does Billable expenses contribute to the Net Profit?

Apologies in advance for being an absolute idiot in Accounting.

I work for a company as a contractor, and pass on expenses I incurred (such as air fares that I pay with my own credit card) on the job as Billable expenses. However, when I look at the Summary page, it shows “Billable expenses - invoiced” as Income, which then contributes to increasing the Net Profit. Is this correct? It doesn’t seem to make sense to me that the more expenses I incur (that are reimbursed), the more “profit” I’m making.

Billable expenses are reimbursable expenses. If you spend to acquire inventory (Invenstment), the inventory will be held as an asset until it is sold to the customer. when the inventory is sold you will,

Debit Inventory cost account - Income Statement
Credit Inventory on hand - Balance Sheet

Debit Cash/Account receivable - Balance Sheet
Credit Income Account - Income Statement

It is the same thing with Billable expenses

You invest by spending for the customer (expenses that will be billed to the customer, it is held on the balance sheet as an asset).

when the customer refunds you will,

Debit Billable expenses - cost - Income Statement
Credit Billable Expenses - Balance Sheet (To write off the investment asset on the balance sheet)

Debit Account receivable - Balance Sheet
Credit Income Account - Income Statement

The income statement entries cancel out each other, but if you added some markup to the bill, that markup becomes your profit.

So, you don’t increase profit unless you add a markup as a return on investment.

Thanks for the answer. I think I understand now. For every “Billable expenses - invoiced” I have in an issued invoice, I should have a corresponding “Billable expenses - cost” in the receipt (in negative amounts)?


Your description is not quite correct. The post to Billable expenses - cost occurs when the sales invoice is posted. If you use accrual basis accounting, this is when the sales invoice is create. If you use cash basis accounting, this is when the receipt is entered. Regardless, unless you mark up the billable expense, the amounts posted to Billable expenses - invoiced and Billable expenses - cost will exactly offset, so there is no effect on net profit.

Whether the posting to Billable expenses - cost appears as positive or negative depends on whether you have chosen to display the group that account is part of as an income group or expense group. This has no financial impact, but controls how the account balances are displayed. This is set in Chart of Accounts under Settings.

Ok, I’m more confused now. Maybe I’ll use an example.

If in Jan 2021, I spent $2000 on air fares, and I paid this with my credit card, but want to get it reimbursed, I create an entry under the Billable expenses - invoiced account. Then, when I receive the payment for this Jan 2021 invoice in Feb, I create a receipt under the Billable expenses account, select the company and invoice number for the Jan invoice, and then key in -$2000 for the unit price. Is this wrong?

You cannot create a payment posted directly to Billable expenses - invoiced. Therefore, you did something different from what you described. You need to read and follow these Guides:

Yes, this is wrong. You should have posted the receipt to Accounts receivable for the customer and invoice number. The receipt had nothing to do with the billable expenses you previously invoiced. The receipt was only settling the amount the customer owed you in Accounts receivable.