Accounting Question: Handling Reimbursements

[David T.]

I am trying to figure out how best (from an accounting perspective) to handle
reimbursements from a tax-free Flexible Spending Account (FSA) that reimburse
me for tax-deductible expenses. I have the following relevant accounts:

Assets: Income 
Assets: FSA 
Assets: Cash Accounts: Checking
Expenses: Medical

The scenario currently works as follows: Assets:Income receives a salary
credit, and from this credit a portion is diverted to Assets: FSA, with amounts
in the FSA building up over time. Meanwhile, I go to the doctor and write
checks to the doctor, with the amounts in Expenses: Medical accruing.
Periodically, my doctor gives me a receipt, which gets submitted to the FSA
folks, who then credit Assets: Cash Accounts: Checking.

The problem here is that, from a tax-accounting perspective, the credit should
first be applied to Expenses: Medical so that the Year-End amount reflects my
actual out-of-pocket medical expenses, and my tax returns are accurate. I am
sure there is a simple fix for this, but I can't for the life of me figure out
how I can get the one FSA payment to simultaneously increase my checking
account and decrease my expense account balances. 

BTW, my wife tells me just to subtract the FSA total from the Medical total at
the end of the year and use that on the tax forms, which will work, but is
nowhere near what I imagine GAAP requires...

What am I missing?

TIA,
David
(tax-free deductions

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