Small businesses that start to take on employees for the first time might come across the need to reimburse their employees for expenses that are undertaken on their behalf but paid out-of-pocket. When this occurs, employers are supposed to reimburse them for the losses. This is done via a process known as an Expense Claim.
But how exactly does an expense claim work from the bookkeeping side of things?
Expense Claims are typically only used when businesses don't provide their employees with a company card or funds they can use ahead of time like a Per Diem. This is usually for things like Traveling Expenses, but depending on the nature of the business can also include Training, Job Materials, Insurance, Telephone, Internet, or other associated expenses. The employees use their own finances to pay for things for the sake of the business and then use the claim to get reimbursement for that, which puts it into the books.
The first thing that most businesses will need to do is create an Expense Claim form that can be used to explain what the employees expended their funds on. It needs to have the date of the expense, the reasoning for it, and the cost of the expense at a minimum. At the end of the month, the individual in charge of the reimbursement will review it, and if approved then it will be reimbursed from the company's capital during the payroll, a bank transfer, or some similar method.
Next, all the employees need to have proof of their expenditures. That can be receipts, print-outs, or other tangible forms of proof. This is essential from a bookkeeping perspective since knowing what was purchased allows you to better categorize the expense, as something like a charge from Amazon is broad enough that unless you know what it is, you'll never be able to sort it properly. It also reduces fraud from a management standpoint, since you need to show actual evidence that the purchase was for something related to the company and when it is time for an audit or applying for tax relief you have proof of purchase.
Once the reimbursement occurs, the expenses are categorized accordingly from the total of the claim. This is done by either creating a Bill in Quickbooks Online and matching the payment once it gets processed through the system, or using the Split function, which allows one transaction to be broken into multiple. The former is more reliable since it can be arranged ahead of time, but the latter can be used as well. Make sure that you attach the receipts and the Expense Claim, all of which can be digital, to the transaction so they can be referenced when needed.
Small businesses with only a few employees can manage Expense Claims with relative ease on their own. But once the number of employees gets high enough it might become unfeasible without either a dedicated individual or automation software. Keep that in mind in the future.
And that is how Expense Claims work in a nutshell.
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