Managing Employee Expense Reimbursement with Child Accounts
As you grow your business and start hiring employees, it will sometimes be necessary for employees to pay for company expenses and get reimbursed later. You can use the employee reimbursement liability account, but it will be difficult to tell whose expenses are outstanding. Many companies still track employee reimbursements by creating an expense summary spreadsheet per employee, printing it out, and putting approval signs on it.
You can solve this problem with creating a child account per employee under the employee reimbursement account.
Liabilities
- Current liabilities
- - Employee reimbursement
- - - Director１
- - - Director2
- - - Employee1
- - - Employee2
The journal entry for using employee child accounts for expense reimbursements will be as follows.
When an employee submits an expense reimbursement request.
| Debit | Credit | |
|---|---|---|
| Expense account (e.g. transportation) | 1,000 | |
| Employee reimbursement: Employee 1 | 1,000 |
When you pay back the money independently by bank transfer:
| Debit | Credit | |
|---|---|---|
| Employee reimbursement: Employee 1 | 1,000 | |
| Bank account | 1,000 |
When you pay back the money with his salary by bank transfer:
| Debit | Credit | |
|---|---|---|
| Employee reimbursement: Employee 1 | 1,000 | |
| Salaries and wages payable | 300,000 | |
| Bank account | 301,000 |
By using employee child accounts for employee reimbursement, it will be obvious whose balances are outstanding, and it will help you avoid costly mistakes of forgetting to pay back to your employees.