Accounting Question

[Anthony]

On 10/15/06, David T. <sunfish62 at yahoo.com> wrote:
> Anthony--
>
> But what if you record this as an expense, and (for want of a better term) the
> payback as an *anti-expense*? If you register this transaction as a business
> expense, and then record the payment against the same expense account, the two
> will cancel each other out, and you will have no liability either way, since
> the end result will be zero.
>
That works fine too, at least 99% of the time.  In fact, I had
suggested it in one of my previous emails, then I decided to take it
out because I thought adding a third possibility would just confuse
matters.

> And isn't that really what is going on here? You're laying out money that gets
> returned to you later, so there's no net change on you (although the idea of
> this as a loan certainly gets me thinking!).
>
Many times in accounting there is more than one reasonable answer.  I
think recording the expense as an expense and then removing the
expense when you get reimbursed is a reasonable position to take.  In
fact, depending on the circumstances, it might even be the best
position to take.  You certainly only would want to treat the expense
as a loan after the reimbursement is agreed to, for instance.

Once things cancel out, it doesn't matter if they were expenses or
assets.  What I'd go so far as to say is generally *not* correct is to
consider the item both income and an expense.

> FWIW, I've always done these as expenses, since it's out of my pocket first.
> And if they don't fully reimburse, then I've got an expense that is deductible.
>
> David
>
Another thing to consider is when the reimbursement is made in a later
tax year than the out-of-pocket cost.  And then you've gotta think
about whether you're using cash-basis or accrual-basis accounting.

For cash-basis accounting, this system might actually be preferable.

Anthony