I have a quick question - I understand about income accounts and expense accounts. The company takes in payments for goods which goes into an income account.
We pay for goods which come out of an expense account.
Let’s say that someone sends us money to pay for their part of one of our expenses.
Say, bob pays us $20 to go towards a dinner that cost us $200 at Tony’s pizza.
Method 1 - Would Misc. Income account increase by $20.00 and Food expense increase by $200 and I would understand that my profit and loss report will show that my income vs expense was $180.00
Method 2 - Would I just make 2 entries into Food expense account an entry of -20.00 and an entry of +200.00 thereby showing an expense within the Food account of $180.00
Hope this makes sense. I understand double entry bookkeeping, but within the quickbooks program, Method 2 just seems to make more sense whereas Method 1 is probably the accepted method.
:dubious:
I would agree with Method 2. You did not earn any income on the reimbursement transaction.
If you just need to know how much the dinner truly cost you, you would offset the food expense with a credit and show your net expense.
If for some reason you want to know how much the dinner cost regardless of whether anybody reimbursed you, you could book the gross expense and then have a related contra account/separate expense category showing reimbursements. It would still be in the expense account range though.
Thank you, that is what I would say too, but that was not how I was taught in bookkeeping. But in class we never used quickbooks. I was told by a fellow bookkeeper to never do it Method 2 way. :smack:
Well, as long as you put the income in a category that made it clear it was not earned (e.g., “Miscellaneous Reimbursements”), Method 1 could work, but it seems cleaner to just net it against expenses.
Maybe they are thinking of making life easier by putting all cash receipts in income so it matches up with deposits more easily?
Okay, Bob hands you a $20 bill. You need to track where that is going to go.
Method 2 doesn’t do that and Method 1 doesn’t do it with enough detail.
I would create an entry showing $20 credited to Misc. Income and debited to Undeposited Funds. At a later time, I can then either deposit that $20 into Cash or into Petty Cash. I would then create an entry showing a purchase from Tony’s pizza for $200 going to your Food Expense account. Your P&L will still show a net loss of $180.