As we continue with our series where we deal with common bookkeeping issues and how to fix them, the topic of today's post can be completely avoided if all business expenses are kept separate from personal expenses 100% of the time. However, this is not always possible making reimbursement of personal funds necessary.
Let’s first define Reimbursable Out-Of-Pocket Costs. According to investopedia.com these consist of cash payments that an individual or company incurs on behalf of the company which will be refunded sometime in the future. While some of these costs may have personally benefited the employee, companies are willing to repay employees for incurring these expenses, because they come about as a result of performing their job.
So, given that definition, let’s think about a time when these types of expenses might occur. Let's say your business employs a sales staff. There will be times those employees meet with potential clients. A typical reimbursable out-of-pocket cost for the sales representative could be a restaurant bill from courting the potential client or the cost of gas to drive to a sales course in a neighboring city.
It is very important to set clear guidelines for employees to track, record, and submit necessary paperwork to receive the correct amount of reimbursement. Equally important is to create policies defining which types of expenses are reimbursable and which are not. Retaining all receipts and recording thorough explanations of all expenses helps streamline the process of reconciling those expenses down the road.