There are three ways people try to record reimbursable expenses in QuickBooks, but only two of them should be used.
When recording an expense incurred for the customer, click the Expenses tab from the Write Checks, Enter Bills, or Enter Credit Card Charges screen (depending on how you paid for the expense). Fill in the screen as you would normally.
In the Expense Tab, select the appropriate expense account, select the appropriate customer in the Customer:Job column, and do not check the column with the invoice icon above it (also labeled "Billable" in later versions of QuickBooks). Save the transaction. You can now generate an invoice for the customer, and drop the transaction into the invoice after clicking the Time/Costs button.
Using this method causes the expense account to be credited when the invoice is generated for the customer. This lowers the expense account rather than increasing a sales/revenue account. If you want this - if you do not want the reimbursed expense to be recorded as income, then this method should be used.
Important: when you have dropped this into the customer's invoice, you will notice that QB does not assign an Item in the Item column. This is normal - do not add an Item here when using this method.
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Similar to Method 1, click the Expenses tab from the Write Checks, Enter Bills or Enter Credit Card Charges screen (depending on how you paid for the expense). Fill in the screen as you would normally.
From the Expenses Tab, select a COGS account. Then select the appropriate customer in the Customer:Job column. Unlike with Method 1, notice that the billable column along the far right side cannot be checked.
It creates unbillable "Unbilled Costs." These will show on the Unbilled Costs report, but when the Time/Costs button is clicked on the customer's invoice screen, they do not appear in that window. In other words, these will remain, forever, on the Unbilled Costs report and can never be dropped into a customer's invoice.
Because of this, this method should never be used under any circumstances. If it is necessary to post to a COGS account while assigning a customer, follow Method 3.
Go to the Items list, and create a new Other Charge item. Click the box that says, "This item is used in assemblies or is a reimbursable charge." This sets up the item so it can be used effectively on the Write Checks, Enter Bills, or Enter Credit Card Charges screens, and also the customer's invoice screen.
Fill in the item with the desired COGS account in the left hand side, and desired revenue account in the right hand side. Fill in other information as needed.
Then, when writing checks, entering bills, or entering credit card charges for reimbursable expenses, instead of using the Expenses tab, click the Items tab and select the item just created. Fill in the correct amount, and mark the transaction as a reimbursable expense in the far right side. Save the transaction.
When invoicing the customer, click the Time/Costs button, then click the Items tab. The item used above will appear. Select it, and QB places it onto the customer's invoice. Enter the sales price and other information. Save the transaction.
When using the item in the Write Checks, Enter Bills, or Enter Credit Card Charges screens, the amount will post to whichever COGS account was chosen when setting up the item. When using the item in the Invoice, Sales Receipts, or Credit Memo screen, the amount will post to whichever revenue account was chosen when setting up the item.
This is the method to use if you take a markup on the reimbursement. It adds the customer's reimbursement to the revenue, and is the only method that allows for a gross margin to be determined without creating unbillable "Unbilled Costs."
In the Edit Item screen, careful attention must be given to assign the correct COGS account on the "Purchase Information" side, and also to the correct sales/revenue account on the "Sales Information" side.
Your company may want to post to various revenue and COGS accounts when recording reimbursable expenses. If this is the case, then individual Items will need to be established, each customized according to the accounts they need to post to.
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